Before the

Department of Commerce

National Telecommunications and Information Administration

Washington, DC 20230

 

 

                                                                                                                                                                                    )

In the Matter of Notice                            )

                                                            )

Request for Comments                           )           Docket No.

on Deployment of Broadband Networks    )           011109273-1273-01

and Advanced Telecommunications         )

                                                            )

 

 

Comments of Greenwood Telecommunications Consultants LLC

 

 

Introduction

Greenwood Telecommunications Consultants LLC, Greenwood Village, CO is a wireless and telecommunications industry consultancy serving a variety of service and equipment providers clients. We also serve multi-billion dollar private equity capital firms who call on us to perform due diligence and deal valuation decision support for making telecommunications venture investments. Relevant to your inquiry, our experience with competitive broadband network services and deployment began in 1997.  We advise and offer management and technical consulting services to residential regional residential property developers (who develop and construct Master Plan and MDU apartment communities).  We provide advisory services, plans and actual implementation support for these developers where they choose to obtain broadband services outside conventional ILECs. We have also been involved with formation of international CLECs to serve small and middle-sized businesses, principally in competition with their respective ILECs. Based on these first-hand experiences, and given our principals’ 20-plus year tenures the telecommunication industry, including stints with regional Bell companies, media companies, wireless carriers, and wireless network suppliers, we are pleased to offer the following responses to your inquiry.  

 

Our Focus for Purposes of Your Broadband Policy Inquiry

In addressing your questions, we choose to focus on both new and existing residential service access and the inquiry’s service policy questions as they bear on residential broadband services.

 

Our Viewpoint

The broadband services market today is nascent. Service to a majority of residents is certain but presently curtailed.  The industry has encountered a severe setback over the past two years as suppliers entered but could not fulfill many parts of the expanding broadband marketplace.  Based on experience and observation, we believe that the first wave of broadband consumers have been both fulfilled and misled.  Services have been problematic to install, often under-whelming in terms of their speed or technical capabilities, and as offered today are limited to fairly basic diversionary applications, such as web surfing.  Whether DSL or Cable Modem, they are subject to limitations of shared-element transmissions (speeds are unpredictable and often slow during busy periods due to transmission congestion are common). The Broadband that consumers, regulators, and Congress among others have been promised of the last few years featured dramatic experiences using daring content and inexpensive high-speed digital data or video services, some with user interactivity. But there was disappointment. Though adequate for web surfing, today’s DSL and cable modem based services are well behind the vision for what was supposed to arrive by now for millions of households.

 

By convoluted argumentation, this late arrival, according to incumbents, relates not to sluggish deployment but to the lack of consumer demand, which after all is based on what today’s broadband represents.  We reject this notion of demand inadequacy.  One cannot reasonably blame a lack of demand for high value content on anything but the lack of an effective ubiquitous medium to carry the type of services real consumers really expect, want and will pay for, and which broadband content and media companies would sell.   

 

There will be demand experimentation on a huge scale, as there has to be. This is an industry following most forecasts that will rise from $60B in US household annual revenues, with the majority of these dollars based on traditional POTS (local and long distance voice) to 3-4 times in the next five to seven years. Local and long distance may drop to only 30-35% of the revenue mix. Telecommunications and by extension, Broadband, are as some have said the “centerpiece” of the technology sector”[1].  So, the thirst for certainty sought by some suppliers must be balanced against the huge rewards awaiting the companies that provide the initiative and competitive drive.  Such initiative requires companies that are culturally adept at making the quantum changes necessary and who envision and execute the huge decisions facing the Broadband service future. We respectfully submit that the companies that have traditionally depended upon fortifying their franchise through regulatory fiat are reflecting their insecurity to carry out the mission. As history serves and this inquiry focuses, these few companies continue to petition Congress and regulators to increase the certainty of their broadband facility investment return, still holding on to their penchant for old-time rate-base guarantees.

 

This begs key questions: Even if granted all their requests, are Telco ILECs really up to the task?  Are they able to provide the next generation Broadband network and inclusively and effusively encourage content, innovative applications and competing providers to serve?  Are they adept at consumer marketing, partnering with entrepreneurial and smaller specialized providers to attract and compel customer subscription?  Is this even their core business?  Is granting the ILECs another legislative fiat, couched as an “incentive” with special preferences or competitive leeway, a sound policy-making step? And finally, is the public’s economic interest well served when the government steps into the uncertainty-reduction business, especially where it favors a selective interest? 

 

Sorting Out the Uncertainty in Broadband Service Delivery: Is it Content or Transport?

Content and media companies drive today’s entertainment and new information industries; we believe they are the real drivers of next generation Broadband.  They are well suited to take on this risky enterprise.  They routinely test new entertainment and media products on consumers fully knowing that the success of a particular product or format may or may not make it.  They make up the stuff that people buy, and the bit streams carry. These companies live and even thrive with this constant demand uncertainty, and even accept its fickleness.  Therefore, the absolute need for a rainbow of bits to deliver all the diverse, real time services is not really in doubt, it’s the number, shape and constraints of the information to be carried on the broadband bit “pipes” that holds the real business uncertainty. 

 

Having said this, the content side of the industry has been slow to develop since it depends on a ready and sizeable segment (minimally in the order of a few million households) that have to try and buy.  High speed and secure transmission that could have brought affordable distance learning, remote office access, effective remote data storage, remotely run but virtually local try-to-buy software applications, protected streaming music or video content, narrowcast entertainment, electronic shopping services while on the run, home security or utility management are still not by any measure ubiquitously available.  A substantial number of consumers show interest in these and other advanced services based on projective research.  However, unless the broadband connections to first reach tens of millions of subscribers with truly multi-service, multi-provider broadband capabilities, the content and application side of the broadband industry is obviously not going to happen.  If ready and unconstrained content delivery is absent, the Broadband service industry will stand still indefinitely.

 

Does “Scope and Scale” Limit Diversity and Intense Rivalry for Local Access Competition?

Access to speed and choice of provider poses the greatest limitation to growing the market and fulfilling consumer demand over the next five years. We look to other scale intensive models such as wireless itself going through arduous deployment of broadband.  To upgrade takes a couple of years in a top US metro area.  At turn-on, a wireless base station can cover 10,000-12,000 people, of which within 2-3 years perhaps 500-1500 are connected by the carrier upgrading the station. Today’s competitive carriers commission stations at rates up to 40 per week using shared, pre-existing rooftops and towers in mechanized build-out programs. Deployments of this scale are accomplished through private financing of assets and buildout, in direct if not fierce competition with 6-8 peers. (We note that the wireless carriers have not asked the government for relief to contain their business uncertainties related to customer adoption, network payback, or technology choice. Despite their competitive uncertainties, US wireless carrier returns and valuations are solid.)  Next generation Broadband Service requires a different type of business model and culture than a POTS ILEC, perhaps more like a competitive wireless carrier, and uses a different market entry mechanism that enables content and service access to open freely across supplying providers. Just as competitive content and communications providers are doing today, enlarging program choice or bandwidth, lower cost of entry, and meeting subscribers at their convenience, not limited by the plant custodian’s practices or schedule are just the start. 

 

Why Change the Regulatory Regime?

We observe that unlike other service industries, telecommunication services have been largely set up to fail.  As the 1996 Act’s passage promised a multitude of suppliers and services, we still effectively have two (Cable MSO and Telco ILEC) mega-sized incumbents that have survived but not thrived in spite of their size and obvious hold on the Broadband service opportunity.  Greater consolidation and less competition, and for many, low returns have marked the last five years of fixed telecom industry development.  While notable exceptions such as DBS exist, that thrive and offer real choice in multi-channel video providers, their satellite platform, admirably designed for its primary mission, is unable to deliver the full course menu of broadband services.

 

Our experience suggests that consumers want more from broadband in terms of service capability and supplier diversity. Bandwidth and new services demand will rise as absolute retail prices fall, but only in the case where the market is sufficiently open to new providers. Broadband service demands will ultimately lead to more sophisticated, cost-effective delivery solutions (such as passive optical networks, PON), and in more remote or dispersed serving areas, dependably include wireless.  To reach this goal, we recommend that new policies be enacted that would transition us from today’s captive networks toward open and neutrally managed access networks (in this context, all qualified service suppliers have access and oversight to shared access network elements). Such a platform is capable of reliably delivering a multitude of suppliers’ signals to an array of individual subscribers, and for the first time opening the choice of provider and services over a common managed access network. 

 

Need for Transition: The Catalytic Role of Government leading to Unconstrained Broadband Access

By itself, consumer demand for more broadband speed and access should not be a call for government intervention in matters properly reserved for the private marketplace. We do not agree that it is appropriate for the government, however well intentioned, to use taxpayer resources and go contract for a corporation to go  “close the digital divide”, especially if in the act we have to rely on today’s outdated, captive infrastructure.  We believe it is the role of government to provide support for orchestrating policy that leads to responsive legislation designed to free the service market by transitioning the present and future funded infrastructure in to a neutrally managed entity.

 

Therefore, it is fair to challenge the US Congress, NTIA, FCC, state PUCs, and local governments to define and oversee a telecommunication network transition plan where broadband service buyers and sellers can meet, trading openly and freely.  We think this starts by implementing networks that are expressly designed to be accessible by a multitude of providers, incumbents and new entrants, all using private sector investment to fund their deployment.  We see the role of the public sector to provide the legislative and public sector tactical framework, along with critical tax credits and public right-of-way resources to create a path to sound transition. These coordinated actions can lead to creation of a standardized method of linking consumers and providers, with network solutions having virtually no constraint in terms of deliverable bandwidth and services. 

 

Timely Reform for the Last-Mile

Broadband service owes its economic existence to consumers.  Consumers are the ultimate beneficiaries and will spend as much as they need, if service, price and provider options are present and reasonably plentiful.  Today’s ILECs have dutifully served dial-tone telephony for years, but they are not necessarily the best firms to provide most broadband service to most consumers.  The ILECs have enjoyed an exclusive position as the nation’s voice provider using subscriber funds to finance the network. However, this approach is fundamentally inconsistent with the needs of the Broadband Services Industry, whose suppliers have to compete with out the benefits of a guaranteed revenue stream to subsidize innovation to raise adoption and bring increasing value as costs drop.

 

In terms of first generation broadband, the traditional Telco ILECs have underachieved.  As we close 2001 we see that Telco ILECs have by many measures failed to serve their existing subscribers, where distance and other technical limitations were not constraining, to the level that alternative providers are reaching with far fewer resources or greater constraints. Where the rivalry sustains their entry, alternative carriers have used innovative hybrid fiber and wireless access elements, new service and care provisioning systems over the last few years with relative success.  For their innovative efforts against comparable uncertainties, the cable MSO and competitive CLECs have added more broadband subscribers at a ratio of least 2:1 versus the Telco’s xDSL subscribers over that period. That this ratio is so favorable to alternative operators is by itself cause for concern. With little to hold them back, incumbent Telcos have had a substantial opportunity and financial and human resources to increase broadband service penetration to levels beyond their present, paltry 2-3M homes served. The Telco ILECs have a rich endowment of plant, decades of head start, embedded base subsidy, and ample R&D funds to support innovative deployment.  However, they have apparently chosen to limit their training, asset and operational and human capital investments to captivate customers rather than pursue a course that expands consumer choice. 

 

Recent press reports[2] indicate that despite virtually uncontested growth forecasts, the largest Telcos will spend less in 2002 than 2001 for network capital.  Despite the now obvious signals of rising demand for residential broadband, many industry researchers forecast more provisioning will occur outside the Telco ILECs over cable, satellite and terrestrial wireless, and private or municipal fiber access.  Though consoling, this is not necessarily good news, since the peoples’ financed plant is still woefully under-utilized, with likely less than 50% of homes provisioned in this decade, with closed, mediocre broadband infrastructure.

 

Today’s Policies Limit Effective Broadband Service Competition

To discuss possible changes or remedies, one has to start with today’s policy limitations.  Through laudable attempts of the regulatory and legislative process, we still have a telecommunication services industry where incumbent monopolies control over 90% of the physical network without having earned that position through vetting customer relationships in a free and open market process. 

 

Growth and innovation invariably depend on industry foundations free of selectively preferential entry or grants and subsidies for incumbents. Private debt and equity markets made new capital investment of $300B into new service suppliers since inception of the 1996 Act. The present market capitalization of these suppliers collectively has fallen to about $15B, with much of the original debt now at junk or default status.  We believe that much of this meltdown arises from the unbridled privileges of incumbency afforded a few to the economic detriment of consumers, investors, vendors and retail service providers.  Until there is substantial change in our service industry structure there is no rational purpose for these interests to re-enter, and once again develop and fulfill consumer demand for broadband services while competing against subsidized incumbents.

 

 We summarize our major points for policy setting below.

 

Industry Structure Issues Warranting a Policy Response:	Dimensions of the Problem or Issue:
Consumers Prefer Robust Choices, and Many Would Shift if Given the Chance	·          ILECs have more incentive to stifle entry than concede a share of the market to CLECs. ·          ILECs are unwilling to act as an open broker on behalf of the consuming public to bargain for unique, alternative providers by retaining exclusive control over the entire subscriber access network. ·          Data point: A public 1996 market research study on preference for the ILEC versus CLECs in the Canadian local exchange business market reports 33% would change at parity prices, 40-65% would change with 10-20% lower prices than incumbent, if identical services were offered.  [3]
Subsidy and Entitlements versus a Free Market Underwriting Process – Consumers are Paying for Infrastructure Construction and Maintenance yet Denied Effective Alternatives to Create Choice of Providers and Carriers.	·          Telco ILECs finance and control network plant expansion and upgrades through customer funded rate-base subsidies.  ·          Consumers (existing) and land developers (new build) finance the access part of Telco ILEC infrastructure under a process beholden to the incumbent’s status quo technical and business interests. ·          If ILECs offer lower priced broadband services they  risk undermining their highly profitableT1 and remaining ISDN services   ·          Compared to CLECs, Telco ILECs have very low capital risk since subscribers underwrite the installation and maintenance of the access network. ·          Some jurisdictions provide guaranteed rates of return and others have subsidy structures designed to selectively reinforce the incumbent’s position.  ·          As presently constituted, ILECs are internally driven to stifle competitive entry which if allowed would negate the need for a rate-base and subsidy/entitlement program supporting narrow incumbent interests.
Perpetuating the Industry’s High Concentration of Suppliers assures Low Service and Technology Innovation, both Critical to Broadband Growth	·          Economic research indicates that highly concentrated industries disproportionately stifle innovation. ·          If public policy is to be pro-innovative, deploying new service with competitive providers is one of the best outlets for innovative solutions otherwise deferred or rejected by incumbents. ·          Broadband is inherently demands experimentation and innovative. Policy should serve the need to increase choice and provider diversity.
Broadband Demand is Heterogeneous. Using Unconstrained Access Facilities and Explicitly Enabling Supplier Diversity Will Raise Adoption, thus Lowering Cost and Stimulating New Service Innovation	·          Traditional narrowband telephony is a relatively homogenous service commodity, with little technical, performance, or feature differentiation.  With the notable exception of disabled people, practically all subscribers use voice communications in the same fashion.  ·          In contrast, residential broadband consumers are going to want varying sets and qualities of voice, data and video, interactive, home automation, security, and other still to be invented future broadband services.  ·          Broadband networks and systems must be inherently capable of supplying different sets of services by some degree of different providers to complementary segments of the consuming public. ·          Steering rate-base funding to neutrally managed networks would lead to more services and providers, serving diverse segments on plant where multiple providers’ signals co-exist.
Subscriber Captivity – Retail Services offered over a Rival’s Facility and Operation Seriously Encumbers New or Competitive Suppliers	·          We cannot think of a retail service industry where new retail competitors must employ a retail rival’s consumer-facing assets to serve the same customers.  ·          Without other prior experiences to go by, subscribers are skeptical about the merits of a competitor’s offer if the means of conveying service that is manifestly controlled by an incumbent rival. ·          We believe the absence of independently branded and managed facilities negatively affects subscriber perceptions about a new provider’s viability., Competitive providers require the intimate technical and administrative co-operation of underlying infrastructure to faithfully carry new services to consumers.  This lack of co-operation affects perceived viability. ·            ·          Subscribers are subject to incumbent’s targeted solicitations to re-subscribe further affecting the perceived quality of a rival service.  ·          Despite the Act’s best intentions, empirical evidence suggests that it is impractical for incumbent provider management and personnel to subordinate their parent company’s retail interests in deference to their retail service rivals, or otherwise aid and endorse an alternative provider.  ·          Additional empirical evidence shows that ILECs do not attempt to compete with their peers outside their own facilities-defined service areas.  ILECs perhaps better than most understand the asymmetry of opportunity based on today’s industry structure.

 

Remedy for Last Mile Reform

Though daunting, we propose that communities have a choice of adopting open service network platforms, not for competing with retail service providers but to enable truly non-discriminatory access to all broadband providers.  We believe that the imposition of cost in the last-mile between subscribers and providers is disproportionately high in the direction of the subscriber when choosing to replace the ILEC for an alternative provider.  Monopolistic incumbents repress consumer choice unduly, and undertake practices that exclude legitimate rivals from participating in the market. 

 

Technological Alternatives Exist to Provide Open Network Solutions

By 2003, commercial availability of broadband transport solutions, including PON (Passive Optical Networks), and other advanced sub-loop technologies designed to open and upgrade legacy plant will be commercially available.  Such developments can reduce subscriber captivity while significantly raising the bandwidth limit between subscribers and providers.  We hold that the consumer can begin acquiring open networks in the coming 3-5 years, acting in conjunction with all retail service suppliers, as well as local, state and federal governments, and equipment and system vendors.  Network management systems exist today that enable multiple providers to monitor the shared open network in order to provide surveillance information at carrier class levels. 

 

Cost of Optical Technology: Near Parity to Captive Copper and Coax Technologies

As a reference and benchmark, we currently have designed and implemented new fiber plant in the range of $100,000 to $110,000 per route mile. The cost of per urban and suburban home that have 25-75 homes per route mile densities (roughly ranging from multi-acre lot to multi-family neighborhoods) would cost $5,000 to $1,350 per home.  Home gateways that convert optical signals into separate video, voice and data bit-streams are projected by 2003 to cost $1,000-2,000[4], and drop further, following other related network element price-experience curves, as adoption and volume increase.  (Another part of the function of these gateways is to eliminate separately purchased equipment otherwise required to attach digital TV and interconnect in-home and wide area networks together.)

 

While no one could claim that optical upgrades are inexpensive, the ability to get more services and save by gaining broadband competition readily for many justifies the premium for many, starting in new home sites.  In fact, for newly built homes, fiber by 2003 may cost little more than prior generation captive network plant. Therefore, we believe, starting with new homebuyers, one should have the option of securing open optical connectivity as a standard service platform.

 

The cost of physical network connection is mostly one of labor, secondarily one of material cost.  Copper twisted pair is less expensive than a strand of fiber, but that cost pales when comparing cost per megabit, the ability to provide choice of providers and services, and increase very substantially the amount of available and terminated bandwidth[5] for next generation fiber-connected homes. 

 

Subsidies Promote Unhealthy Subscriber Captivity: Example in New Home Installations

Incumbent service captivity is in many ways even more instructive in the new home deployment situation.  New home developers pay the Telco ILEC, sometimes years in advance, to install lines and network facilities into new single, townhouse and apartment type communities (currently about 1.6M units are added annually).  This takes place on top of the ultimate homeowners’ ongoing captive subscription fee.  This connection fee varies by locale, but our experience indicates land developers pay between $1,100-1,400 per home to the ILEC for the privilege of attaching the incumbent Telco copper network to each new single or multi-family home. Since this cost is passed along to the ultimate buyer, the new homebuyer effectively underwrites most if not all the ILEC’s incremental capital and installation costs.  Since this cost is paid in advance of occupancy, the Telco ILEC is never in real jeopardy of the plant capital being paid back.  So, in effect, each new resident/subscriber pays for an allocated share of the access network not as an investor, or controlling stakeholder (where at least they could direct custodial care of their lines, cross connections, and circuit or IP switch port be assigned to another provider), but as a pro hoc subscriber[6].

 

Created by the current practice, this uneven footing imposes a great challenge for new CLECs to offer competitive service when the underlying infrastructure cost falls on them without the same cost recovery mechanism (buyers are not ordinarily going to pay to connect each provider separately).  This is not to speak of another level of unequal footing related to aggregating enough subscribers in a given service area to minimally meet long term competitive cost requirements.   We therefore conclude that these practices hold back and distort the marketplace by:

1.       Continuing the practice of Telco ILEC exclusivity in terms of capitalizing new plant and on-going maintenance, where subscribers underwrites the cost of both,

2.       Preempting consumer choice by effectively removing their ability to direct the use of their portion of the network to a preferred service supplier.

 

It is worth noting that a similar situation arises where incumbents are afforded free access in other areas such as shared tenant offices, shopping malls while CLECs must pay for their access.  In essence the incumbent is given a discriminatory preference to reach broadband consumers because of its incumbent status, and not on the competitive merits of its offer.  

 

Promise of Next Generation Broadband

Residential consumers in particular have many ways to use effectively broadband to enhance living, security, productivity and convenience. We have seen new home communities with advanced fiber networks that link nearby school classrooms, and provide convenient services such as remote banking and shopping with local retailers. As just one of many new uses of residential broadband services, there are a number of electronic home management systems that can notify mobile users of home environment and utilities remotely.  Applications, such as interactive or on-demand video services, allow consumers to arrange what and when they choose to view.  Not these services and applications will necessarily succeed, or even if they do, they may be only adopted by a small segment.  However, the number of possible services available to the widest possible audience is important to the success of the access service and programming and content businesses.  Based on our first-hand observations, we do not believe that the incumbent access providers necessarily want to develop the market propositions and features that over 50M American households would demand and spend on consumption. 

 

Consumers are Broadband “Ready”

During the early days of broadcast radio, one could not fairly blame the lack of quality on the pioneering broadcast stations and networks.  They played a vital role in the quest for high fidelity radio reception.   However, for the first twenty years of the radio broadcast era, crude AM receivers were in the homes of millions, but as the earliest forms of that era’s technology, these sets lacked sustained listening quality. Transmissions were easily impaired or interrupted by whistling sounds, electrical storms and nearby motors. Programming choices were very limited.  Nevertheless, without radio, especially then, society would not be as connected and informed. Today’s residential broadband service is in many ways a similar pioneering experience.  Unlike the first twenty years of radio, there are few limitations in consumers’ broadband reception equipment -- the TVs and PCs, intelligent peripherals, networks and software capabilities are extremely capable, often more idle than active. This is a result of years of global competition among the suppliers of the major elements of these devices: displays, memory, disk drive storage, communication systems, we have vastly more powerful and inexpensive ways to use broadband transmission. More than the majority of homes has PCs, and about the same number have multiple televisions and wireless service subscriptions.  

 

Inside these advanced-but broadband-idled homes, one sees many uses of a variety of inexpensive local area networks, with advanced wireless and wired, even fiber options, to share data and printing and storage. By 2003, gigabit Ethernet outlets, which would for the first time, allow homes to send and receive simultaneous broadband video/data/voice content to every room.  “Gig-E” connectivity is projected to cost a few dollars per connection as it becomes an industry-wide, high volume standard.

 

Core Networks are Broadband Service “Ready”

Upstream, the central networks that new providers need to mount retail services have advanced in both capability and performance.  More important, they are economical as smaller or entry scale solutions, thanks to the inherent modularity of core network design.  Outsourcing human-intensive functions such as telecom infrastructure construction and customer care is the profitable and time-efficient norm, and these businesses have thrived during periods of industry growth. Further, it is feasible to make direct network attachments, that are electronically managed, to the current ILEC plant.  While procedurally intensive, CLEC to ILEC attachment is assured by following consistent and precise technical standards, a practice already widely followed.  So, where is the bottleneck, and to your first question, the most important aspect of broadband regulation?  It’s the full and fair openness and ability by all LECs to fully exploit the legacy network, currently controlled exclusively by the ILEC.  We focus on this bottleneck as a basis for our answers to your policy questions.  We believe that the ILEC’s is unwilling to fully exploit the network, which a rival set of suppliers would otherwise offer.  We believe that the ILECs choose to make competitive entry difficult in a natural response to their own interests. Therefore, appropriate intervention is required to bring a neutral management approach to the use of the public local access elements of new broadband delivery networks.  

NTIA Inquiry Questions and Responses

II-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.

 

Based on today’s situation, we believe ubiquitous Broadband Service most turns on facilities based competition (we would prefer to call it “facilities based parity”) is the most effective area to focus Broadband Service policy formulation.  Given the massive regulatory overhaul required to transition away from today’s sluggish, non-competitive monopoly dominated industry, to one where customers are served by a multitude of providers, common access is provided by a neutrally managed access network entity.  The Broadband access network managed on behalf of a public collective of private owners, links qualified providers to customers, and is essential to assure full, effective competition. We believe this would provide three critical ingredients that all pro-competitive sides appear to agree:

• More service innovation can still drive consumer uptake well beyond present levels,
• Deploying networks that exploit the vast bandwidths of optical signalling thus lowering cost to serve subscribers, and
• Provide sufficient access flexibility to change or add services as well as content and communication providers as individual consumer demand changes.
• Greater return on the consumers initial and periodic investment into broadband access networks

In this environment the need for external regulation drops as choice of services and providers increase. Using a common facility that delivers multiple services, from multiple carriers to individual consumers is a paramount objective of the policy outcomes.  It carries with it the need to lower the cost of connection between providers and consumers, using the least expensive point of entry and freedom to chose optimal transmission formats further lowering access barriers consistent with lowering cost to consumers. 

 

In regard to inter- and intra-modal competition, and minimal regulation and access-for-all, the first deals with increasing entry and reducing the conditions while the second poses less government responsiveness to address perceived market failures or imbalances, and the third deals with a standard of service ubiquity.   More cross mode competition is consistent with increasing consumer choice and generally reducing cost. But in today’s subsidized environment, there is little purpose to adding cross-mode services if they cannot compete due to attaching high subsidy fees (thus barriers) to every call outside a local service area.  These and other subsidies undermine the power of new modes of technology to deliver better or lower cost services.  Removing these barriers calls for allowing prices to float in the market, much as airlines were de-regulated in the late 1970’s caused greater variation in route prices, seat quantity, quality differences to come into the bargaining system between private buyers and sellers.  For Telecommunication services, we believe in the vision of this de-regulation, but this process has political implications, which may make the undertaking too difficult to sell to certain consumers and constituencies to accept, independent of the economic benefits this step would bring to the entire society.  

 

Minimal regulation should not be addressed as a political choice as much as the result of policy and legislative outcomes achieved by diligently building free and competitive markets that regulate themselves. We would hold that simply taking away legislative and executive powers needed to achieve the proper goal at this juncture of market development is not consistent with achieving a vital minimally regulated, free market for broadband services.

 

Access-for-all, as we state above, is as a matter of economics likely to impose a greater burden than is warranted or even preferred by all consumers.  We believe that a setting the goal of providing the most number of broadband services (content, communication or transmission based), service providers (with capability to attach themselves to the access networks) delivering to the greatest number of consumers is the appropriate public policy goal.

 

II-B. How should broadband services be defined? Please discuss (1) what criteria should be used to determine whether a facility or service has sufficient transmission capacity to be classified as "broadband;" (2) how the definition should evolve over time; and (3) the policy implications of how the term is defined.

 

We offer the following elements that define broadband service for policy setting purposes.  Service providers and facilities are fairly categorized as “Broadband” if they have these minimum attributes:

1.       Broadband access facilities are simultaneously multi-service, multi-provider capable.

2.       Broadband service providers (used here: communication, content or transmission based) over these facilities are able to fully share all transmission facilities without technical or administrative limitations.

3.       Broadband access facilities are designed to allow unconstrained delivery of broadband services, which maintains their long-term value. 

 

It is generally recognized that first generation broadband is not limited to a particular transmission method (modulation and emission) or medium (copper, fiber optic or wireless), proscribed signalling speed or particular carrier bandwidth. Broadband services are generally considered to have characteristics that enable simultaneous projection of voice, data, and more conditionally, video services when they are all carried to the customers on a common (or co-existing set of) signal(s).  This multi-service capability means that broadband services can be offered at much lower cost to both residential and business users compared to separately transported and provisioned services, as ILECs offer today.  Therefore, the definition of broadband ought to recognize its inherent multi-service demand and capability (a factor that is at least as significant as raw signalling speed) with respect to shaping policy and competitive market initiatives. 

 

This policy concept contemplates a common managed network element (in the form of a signal transmission path, terminated at the individual home, and “upstream” at economically concentrated neighborhood points of presence), whose ownership is readily separable from all retail providers up to a common gateway demarcation point.  This path is also a resource that is shareable among different providers, even concurrently.  (Example: different parts of an enterprise, or different rooms within the same house, with optical networks could conceivably adopt different retail providers that concurrently transmit bits over the same facility physically serving the address.)

 

The policy implications and definitions of broadband are significant.  Broadband services can be almost infinitely separated using powerful and inexpensive packet networks that use routers to forward information from one to one, or one to many.  Under already gelled industry standards, mostly notably Gigabit Ethernet, relatively inexpensive gateway devices (residential or business) are available and capable of separating the service carrying bit streams, each readily and automatically connected to an array of terminal devices consumers use in interacting with their broadband services.  When applying policy directives to Broadband, policy makers should vigilantly focus on the sever ability of these bit-streams, and the technology’s inherent ability to have competitive providers’ signals fully co-exist on the same transmission path.

 

C. Several studies indicate that the rate of deployment of broadband services is equal to or greater than the deployment rates for other technologies. What is the current status of (1) supply and (2) demand of broadband services in the United States? When addressing supply, please discuss current deployment rates and any regulatory policies impeding supply. When addressing demand, please discuss both actual take rates and any evidence of unserved demand. Please also address potential underlying causes of low subscribership rates, such as current economic conditions, price, cost-structure, impediments to the development of broadband content, or any other factor. To what extent has the growth in competition for broadband and other services been slowed by the existing rates and rate structures for regulated telecommunications services?

 

Broadband Supply Situation (Residential Marketplace)

Telco ILEC carriers are offering first generation broadband, xDSL most typically to residences, and T1 to T3 services to businesses, the latter using fixed and modularly provisioned transmission systems.  Limited data exists regarding the split of business and residential DSL installations, but we project that between 2-3 million US homes (or about 2/3 of all DSL subs) are currently served by DSL.  Normally, these connections share the same pair and transmission path as one of the voice circuits into the home.  Cable Modem technology used by MSO cable operators, and is almost exclusively serves residences, now estimated to exceed 6.4M homes served (Nov. 2001, NCTA). Cable Modem service requires plant upgrades, so that carried over drops in the coax distribution plant are able to pass two-way signals using Hybrid Fiber Coax, HFC.  Fiber feeds two-way signals between the Head End and sets of 250-500 homes.  Cable modem delivered broadband data uses distinct transmission paths to send data in either direction simultaneously.  By adding up and downstream carriers (each downstream carrier occupies a 6MHz slice of video bandwidth) or take a more intensive route of splitting the number of homes assigned to each fiber node.  MSOs are arguably in the better position to increase their transmission capability as demand builds.  All of the top ten operators supply Cable Modem service where they have upgraded their analog plant to two-way, data certified HFC plant (in most cases are now well above 60-80% of all homes passed). More of the smaller MSOs now offer Cable Modem broadband service where they have upgraded their plant. 

 

We also cite the success of the DBS operators to offer an always-on satellite delivered data service, usually in conjunction with their other satellite-fed video services.  DBS is the most conditional of these services in terms of available bandwidth since the a few number of transmission downlinks are shared by a large number of subscribers.  However, the service is often the best option for rural customers, given their few alternatives.  As of 2001, 16M homes are connected to a DBS video service, with an estimated single-digit percentage of those subscribers using a DBS delivered broadband service. 

 

Finally, wireless broadband services, using MMDS, unlicensed and in other cases, mobile PCS spectrum, were launched over the last two years.  These services were hailed initially as the best alternative to the wired connections to the home or business for broadband data.  Recently, two of the larger carriers to deploy this technology, Sprint and AT&T suspended their rollouts citing the high cost to deploy, and limited demand as they offered.  Based on reports from the field, including former employees responsible for deploying their services, there was unforeseen cost in the installation, specifically field installer “truck rolls,” where the subscriber’s mast or roof-mount directional antenna was expensive to survey and ultimately install.  Though fixed wireless services were probably known by operators to not be always simple, nonetheless the actual costs exceeded the forecast. In the case of AT&T, the initial deployment was deployed as a single market trial.  Given their proposition, we believe AT&T was unable to justify the service to consumers as sufficiently compelling due to its low data speeds.  We also understand that AT&T was not able bring the focus at this time to this service, given AT&T’s emphasis on serving the higher growth mobile marketplace.