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 Alcatel USA, Inc.
Alcatel USA, Inc. (“Alcatel”) hereby responds to the National Telecommunications and Information Administration’s (“NTIA”) Notice and Request for Comments on Deployment of Broadband Networks and Advanced Telecommunications (“Notice”).[1] Alcatel is a wholly-owned subsidiary of Alcatel S.A., a manufacturer of telecommunications and Internet equipment headquartered in France. Globally, the Alcatel group is a leader in digital subscriber line equipment, terrestrial and submarine optical networks, satellites, public switching, fixed wireless access, and intelligent networks. Alcatel operates in 130 countries, had sales over $29 billion in 2000, and has approximately 100,000 employees throughout the world. The U.S. market accounts for 23% of Alcatel’s sales, which focuses on the ASAM Digital Subscriber Line Access Multiplexers (“DSLAMs”) and LiteSpan® Next Generation Digital Loop Carrier (“NGDLC”) systems, the products responsible for its market leading position in U.S. broadband access.
The rapid deployment of multiple broadband facilities and services at competitive prices is vital to the United States for a variety of compelling economic reasons. The benefits of the information technology sectors to the economy in the late 1990s was evident by the number of jobs created, the affordable services delivered to consumers, and the growth and productivity as a whole. However, the Internet, in its current form, has reached a plateau of functionality and value to consumers, and the next generation of services will depend on the availability and affordability of broadband access.[2] A recent estimate of the economic benefits from widespread deployment of high-speed Internet and broadband services at between $100-$500 billion per year.[3] The beneficial effects of such a deployment go far beyond the telecommunications sector as it would result in increased demand for a wide variety of content, faster microprocessors, computers, data storage, and optical fiber.
A new report from the Organization for Economic Cooperation and Development (“OECD”)[4] indicates that the United States is falling behind its international economic competitors as they adopt aggressive broadband deployment strategies and increase the availability and penetration rate to their citizens. The United States reaped a substantial portion of the economic and investment benefits of the Internet in the late 1990s because the Internet and most of its content was based in the U.S. Now, countries such as South Korea, Sweden, and Japan, are moving beyond the U.S. to benefit from the next generation of services that broadband will provide.[5]
Equal to the favorable economic impact of widespread broadband deployment are the potential benefits to homeland security. Broadband services will provide the enhanced communications skills needed in the event of a future attack on the country and could provide a vital link in the event a city or geographic area was quarantined due such an attack.
Alcatel’s comments suggest the U.S. adopt a strategy that recognizes the numerous benefits of broadband deployment and seeks to achieve maximum penetration of these services through competition. The broadband market is a nascent market in which no one form of broadband delivery currently possesses a degree of market power that would necessitate increased regulatory treatment. In fact, the competitive circumstances justify a significantly reduced regulatory atmosphere. Competition among and between broadband providers will increase availability and subscribers, lower prices, and drive content.
A.
The Primary Policy
Considerations in Formulating Broadband Policy for the United States Should
Focus on the Rapid Deployment of Broadband Services at Competitive Prices.
The U.S. Government should endorse a broadband policy and regulatory agenda that encourages the build out of multiple facilities-based networks, recognizes both inter-model as well as intra-model competition, is technologically neutral, and delivers broadband services at competitive prices. Such a policy will not only increase the availability of broadband services, but it will simultaneously stimulate competition and increase broadband subscription rates.
An effective broadband policy will encourage facilities-based competition in order to avoid the shortcomings of resale-based competition and to encourage investment and modernization of network facilities. While competitive telecommunications carriers and cable television providers that are reliant on all or part of the incumbent’s infrastructure may provide limited price pressures on the incumbent, they do not significantly enhance the value of the network architecture and their reliance on the facilities-based provider may result in their demise. Further, regulations and policies that mandate facilities-based providers lease their services or elements of their network at below market or below cost rates create disincentives for the incumbent providers to enhance and improve their own networks. Wholesale resale is an important means of entry, but government policy should encourage competitive providers to eventually construct and move on to their own networks and should ensure enhancements to the incumbent’s facilities are not artificially discouraged by regulation.
Competition in broadband should be encouraged among distinct types of providers (CLEC v. ILEC), between delivery platforms (cable MSO, telco, satellite, fixed wireless), and between content providers (access to multiple providers). Current regulation does not promote such vigorous competition, which invariably precludes the necessary market forces that would rapidly increase the availability of high-quality broadband services and place downward pressure on retail prices. Telecommunications carriers, particularly incumbent LECs, are at a competitive disadvantage in the market since they are subject to a number of onerous regulations that do not affect other broadband platform providers. Cable television, satellite, and fixed wireless providers are capable of delivering the broadband services to the user that are the focus of this inquiry, but they are not subject to the same collocation, unbundling, and cost methodology burdens placed on local telecommunications carriers. Disparate regulations not only discourage the deployment of multiple facilities-based broadband platforms, but they can create a perception that one platform is superior to another or that one platform provider has significant market power, thus justifying the heightened regulatory standard.
Broadband policy should be technologically neutral and recognize that this is a nascent market and no one platform or market participant possesses the market power necessitating heightened regulatory safeguards. The FCC has recognized that advanced services and high speed Internet services are provided using a variety of networks that rely on different network architectures and transmission paths, including the existing telco copper plant.[6] There is no evidence that telecommunications carriers possess an anticompetitive advantage in this market; in fact, all statistical evidence demonstrates cable television currently enjoys a majority market share that is increasing.[7] The disparate regulatory treatment that adversely affects telecommunications carriers when compared with other platforms capable of delivering broadband services is stifling investment in the current and next generation of broadband facilities and obstructing competitive forces necessary to increase availability and lower prices of these services.
B.
Broadband Should be
Defined by the Quantity and Quality of Content that Can and Will be Delivered
and Not Simply by the Speed of the Service.
Broadband services should be defined by the fast, interactive, content-rich service trifecta of voice, high-speed Internet, and broadcast quality video that can be delivered to the user. Broadband cannot be defined statically, rather it is a dynamic collection of “indispensable components of functionality.”[8] FCC Chairman Michael Powell recently described such components as including (1) a digital architecture, (2) capable of carrying IP or other multi-layered protocols, (3) that has an “always on” functionality, and (4) that is capable of scalability.[9] Such fundamental components can be deployed through a number of different networks, including the existing copper-based telco local loop.
Broadband cannot be equated simply to a larger pipe capable of delivering more bandwidth, rather it is a convergence of several technologies that include, at least, voice, data, and video services.[10] Several institutions have attempted to define broadband services by the speed at which data is downloaded.[11] Such a static definition is inaccurate in that broadband services and content applications will continue to evolve and change over time, advances in compression technology keep changing the amount of bandwidth necessary for varying types of content, and it fails to grasp the constantly evolving content applications that will be available to users through broadband services. Specific to the focus of the NTIA’s inquiry, a static definition of broadband services based on currently feasible speeds may establish a public policy goal to which successful achievement would be premature.
Alcatel suggests NTIA not define broadband by what it may be but by what it is not. Broadband is not the legacy voice services and dial-up Internet access that were the primary focus of the 1996 Communications Act. It is not a service in which the user can receive only one of the trifecta of services, such as cable television, voice, or Internet services. Cable television and voice services are subject to legacy regulations specifically intended for these markets that address certain distortions and competitive forces within them. The actual or potential implication of these regulations in the broadband market will stifle investment, obstruct competitive forces, and sustain unacceptably low broadband subscription rates. For example, the FCC’s inquiry into whether the line cards in DSL systems could be classified as unbundled network elements subject to collocation and the subsequent delay in making a decision on this issue is one of the proximate causes to the reduction in the deployment of DSL facilities.[12] Regardless of a line card’s inability to be unbundled in a central office or remote terminal, the FCC’s inquiry alone creates investment uncertainty and adversely affects the deployment of broadband facilities by potentially applying legacy regulations intended for voice services to this new market.
C.
While Broadband
Availability Increases, Broadband Subscription Rates Remain Low.
Current generation broadband services are increasingly available to many Americans, yet subscription rates are not increasing, in part, due to the pricing of these services and lack of content warranting such an investment. Many have described this as a “chicken or egg” scenario where it is unclear whether the service must be available to increase demand for applicable content or whether the content must first be available to increase demand for the service. Subscription rates will increase dramatically only when users are offered a variety of choices of providers that compete against one another via the same or different platforms. Telecommunications carriers do not possess market power in the broadband market, yet the disparate and heightened regulatory treatment is applied to these carriers in this market, thus restraining their full competitive entry into this market and leaving cable operators essentially unchallenged in providing these services.
A recent report by the Yankee Group suggests that, by year end, approximately 75% of all U.S. homes will have access to a current generation broadband connection, primarily DSL or cable modem, which is a net gain of 15% from the footprint in 2000.[13] Sixty-six percent of the houses passed by cable operators offer broadband services, whereas only 45% of homes passed have access to DSL from a telecommunications carrier. Cable has an estimated 64-68 percent market share of the current generation broadband market with DSL making up most of the difference.[14]
Even though the telecommunications carriers are losing market share for current broadband deployment, they have significantly slowed the roll out of these services, primarily due to regulatory impediments.[15] The imposition of actual or potential regulations originally intended for the legacy voice network, such as unbundling, collocation outside of the central office, and TELRIC based cost methodologies,[16] increase the costs of broadband rollout and magnify their risk when deploying new technologies or improved network elements.[17] This problem is exacerbated by the fact that the primary broadband competitors of the telecommunications carriers (cable television, satellite, fixed wireless)[18] do not face similar mandates or uncertainty concerning the return on their capital investments.
This regulatory disparity and the disincentives for ILECs to invest and compete in the broadband access market is retarding the competition necessary to provide choices to users and promote downward price pressures. A recent survey shows demand for broadband services exists but the current price structure remains too high for many users.[19] Downward pressure on prices will only occur when all parties capable of delivering broadband services are permitted to effectively compete on a level playing field.
Comparisons between broadband deployment and the time necessary to provide past technological advances fail to recognize the distinct characteristics and do not properly indicate whether the rate of broadband deployment is adequate. Current generation broadband access services are essentially enhancements to current Internet services, and the infrastructure necessary to deliver broadband access services, telephone and cable television lines, are, for the most part, already deployed and available to the user. Statements that broadband deployment is more rapid than rural electrification, in which an entire new infrastructure had to be created, or compact discs, in which the user had to replace the existing investment in content (records with CDs), inaccurately create an impression that the rate of broadband deployment is adequate or superior to these past technological advances. International comparisons that demonstrate the U.S. is falling behind its major trading partners more accurately describe the current situation than do comparisons to previous technologies that are clearly distinct from broadband access services.
Access to multiple, competitive broadband providers should be the goal of a nationwide broadband policy. This policy should rely on market forces in which competition between and among varying platforms will increase penetration and lower prices. Inevitably, market forces will fail to ensure each and every business or individual has access to broadband services, but this failure does not justify the initiation of a universal service regime that relies on regressive surcharges and cross subsidies. Rather, a universal service regime that relies on market forces and assists the targeted users with narrowly tailored tax credits that make these services more affordable is the optimal scenario.
E.
The Regulatory
Impact on Broadband Deployment by Telecommunications Carriers is Evident.
Incumbent telecommunications carriers are not rapidly deploying broadband facilities and services due, in part, to current regulatory disincentives to invest and the future regulatory uncertainty that may jeopardize the revenue return of such facilities. While these carriers recognize they are rapidly losing market share to other broadband service providers, primarily the cable television companies, telecommunications carriers would be doing a disservice to their shareholders if they were to make substantial capital investments in facilities such as digital loop carriers or fiber to the home without an acceptable level of certainty that they will not have to replace or reconstruct such facilities based on a future regulation.
Providers that are deploying broadband fully expect a reasonable return on investment. Cable television operators have spent billions of dollars upgrading their networks to move beyond the one-way pay television market and offer the suite of services that broadband facilities enable.[20] Likewise, satellite companies are launching new satellites, lobbying for additional spectrum, and reconstructing consumer premises equipment to move beyond their current one- way video market and into a market that includes both two-way high speed data and video.[21] Cable television and satellite companies are making these substantial capital investments based on the expected return on investment, an increase in average revenue per user (ARPU), and increased market share.
Contrary to this behavior, incumbent telephone carriers have slowed or halted deployment of broadband facilities due to current and potential regulatory disincentives. Currently, incumbent telephone carriers that deploy broadband facilities and services will have 100% of the risk associated with such investment, yet, unlike their cable or satellite competitors, they may have their return on investment limited. For example, telecommunications carriers could bring fiber to the home to deliver next generation broadband services and compete with other platforms, but carriers are balking at such a deployment because they do not have reasonable assurance that they will be able to recover the cost or will be subsidizing their competitor’s entry. In order for such an investment to be made, significant issues must be addressed such as whether the incumbent will have to maintain its current copper plant exclusively for their competitors access and whether competitors will have a regulatory right to access the new facilities at rates that prohibit reasonable profit or even a return on cost.
F.
Regulation and
Policy Should Recognize a Distinction Between Broadband and Non-Broadband Facilities.
Alcatel supports a regulatory initiative that recognizes a distinction between broadband and non-broadband facilities, which places broadband facilities in a “minimally-regulated space” while reserving current regulations for legacy network facilities. Such a distinction would spur investment in both broadband and non-broadband facilities, is consistent with the Communications Act of 1996, and can be administrated as demonstrated by the Commission’s interstate/intra-state facilities separations policy.
As previously mentioned, the implications of regulations intended for circuit switched voice services, in which the incumbent telecommunications carriers enjoy substantial market power, on broadband facilities and services is having a chilling effect on investment. This regulatory disparity, in which the broadband services and facilities of telecommunications carriers are more regulated than other broadband platforms, inhibits the full effects of competitive entry into this market and delays the necessary competitive pressures to lower prices.
When the Telecommunications Act of 1996 was enacted broadband facilities, such as DSL or digital loop carriers, were not the primary focus of the statute. The Act focused on competitive access to the incumbent local carrier’s circuit-switched, voice network and rewarded unencumbered access to this plant with entry into the long distance, or InterLATA, market. However, the Act was not shortsighted as it provides the Commission with wide latitude through its Section 706 mandate and statutory forebearance authority.[22]
The enforcement of a regulatory distinction between broadband and non-broadband services would be feasible as the FCC’s interstate/intra-state facilities separations policy provides a blueprint on how such a system would work. The FCC can work with the state regulatory authorities to declare certain recently deployed facilities and/or services are broadband rather than legacy, thus exempt from certain regulations.
F 1. A Regulatory Distinction Between Broadband and Non-Broadband Would Promote Competition in Both Markets.
A regulatory distinction that recognizes broadband services and facilities are in a nascent market in which incumbent telecommunications carriers do not possess market power would enhance competition in both broadband and non-broadband markets. Regardless of the platform, broadband services must include, at least, voice, high-speed data, and video services in order to be competitive. Competitive pressures benefiting the high-speed data market will also benefit the voice market if multiple platforms are offering such services. Evidence of this competition is already apparent as cable television providers have upgraded their networks to provide data, video, and voice services, and are increasing their voice customer base.[23]
K.
Consistent
Regulatory Treatment at the Federal and State Level Would Spur Investment.
Investment in competitive broadband facilities will benefit not only through regulatory parity among the various broadband platforms, but also through a consistency of regulations at both the Federal and State levels. The Federal government should work closely with the state authorities to ensure regulations affecting broadband deployment are horizontally and vertically consistent. The FCC should work within a Federal-State working group and with NARUC to create a consistent, nationwide regulatory regime that provides a reasonable degree of surety concerning broadband facilities investment and deployment.
N.
Regulations That
Spur Broadband Deployment and Competition Can be Achieved Through Current Laws.
The deployment of multiple, competitive broadband platforms will not require the Congress to further amend the Communications Act. While an amendment to the Communications Act could address the investment disincentives and regulatory parity previously described, current law provides the FCC with sufficient legal authority to create the competitive environment necessary to spur deployment, increase competition, and drive content.
First, the Commission may determine that broadband services do not fall under the definition of “telecommunications services,” thus relieving them from these regulations.[24] A determination that all or some broadband services are not telecommunications services could exempt them from Title II of the Act, thus providing the regulatory relief from the pricing, unbundling, and collocation rules that the ILECs claim are inhibiting their broadband investment.
Second, if the Commission concludes that broadband services fall under the definition of “telecommunications services” or are subject to Title II regulation, the current law, specifically Sections 706[25] and 10[26] of the Communications Act of 1996, provide the Commission with the necessary authority to create an environment of regulatory parity and certainty for broadband services. Section 706 specifically requires the Commission to utilize its forebearance authority under Section 10 to encourage the deployment of advanced telecommunications capability, which is defined as including broadband capability enabling users to originate and receive voice, data, and video services. With certain exceptions,[27] section 10 permits regulatory forbearance if (1) enforcement of the regulation is not necessary to prevent an unjustly or unreasonably discriminatory activity, (2) is not necessary for the protection of consumers, (3) and forebearance is consistent with the public interest. The public interest, for regulatory forebearance purposes, includes the promotion of competitive market conditions and competition among providers of telecommunications services.
In the case of broadband services, a compelling argument can be made that Section 706 mandates the Commission to exercise its Section 10 forebearance authority to further the public interest and spur investment in the advanced telecommunications market. Broadband services are crucial to the nation’s economic development, competitiveness with other nations, and its homeland security. Regulatory forebearance of voice regulations to broadband facilities will (1) bring regulatory parity and alleviate the discriminatory treatment of ILECs in this nascent market, (2) will benefit consumers with increased penetration and competitive pressures on cable television and other broadband platforms, and (3) is clearly within the public interest because it promotes the competitive market conditions necessary to increase availability and reduce prices, and drive content.
Alcatel thanks the NTIA for its leadership on this issue and appreciates the opportunity to comment on this important topic. There is ample evidence that broadband deployment is crucial to the nation’s economic growth, its competitiveness with its major trading partners, and as an element of homeland security. The U.S. government should adapt a nationwide strategy to accelerate deployment of broadband services by creating regulatory parity among all market participants and removing barrier to competition.
In sum, Alcatel suggests such a strategy include the following:
· A technologically neutral policy that promotes and recognizes intra-modal and inter-model competition in this market.
· A dynamic definition of broadband services that is not dependent on any particular technology or speed.
· Regulatory parity among all market participants, including the incumbent local exchange carriers.
· A regulatory distinction between legacy and broadband services that recognizes no one provider possesses market power in this market and broadband is placed in a “minimally regulated space.”
· A universal service policy that relies on competition and economic incentives rather than regulatory mandates.
Respectfully Submitted,
Alcatel USA, Inc.
By: ____________________
Paul Kenefick
Senior Regulatory Counsel
1909 K Street, NW
Suite 800
Washington, DC 20006
202-715-3709
December 19, 2001
[1] Department of Commerce, National Telecommunications and Information Administration, Notice, Request for Comments on Deployment of Broadband Networks and Advanced Telecommunications, 66 Fed. Reg. 57941 (Nov. 19, 2001).
[2] For an in-depth discussion of the current and future economic benefits of broadband deployment see Letter from Robert Crandall, Senior Fellow, The Brookings Institute, et. al., to Donald L. Evans, Secretary, U.S. Department of Commerce, et. al., (Dec. 4, 2001).
[3] Id.
[4] Working Party on Telecommunications and Information Services Policies, The Development of Broadband Access in OECD Countries, The Organization for Economic Cooperation and Development, Oct. 29, 2001 (“OECD Report”).
[5] For example, 92% of the population of South Korea will have broadband access by the end of 2001 OECD Report at 9. The Swedish government has a goal of ensuring that broadband connectivity reaches 93% of towns and villages by 2004. Id. at 40. In Japan, the incumbent telephone operator, NTT, aims to make DSL service available to almost the entire country by March 2002, and it plans to deploy fiber to the user in major cities by March 2003 and smaller cities by March 2005. Id. at 31.
[6] Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, CC Docket No. 98-146, Third Notice of Inquiry, 16 FCC Rcd 15,515 (2001) (“706 NOI”).
[7] Denise K. Berman, Bells Make a High-Speed Retreat from Broadband, Wall St. J., Oct. 26, 2001, at B1 (“WSJ Article”).
[8] Michael K. Powell, Chairman, Federal Communications Commission, At The National Summit on Broadband Deployment, Washington, DC (Oct. 25, 2001) <http://www.fcc.gov/Speeches/Powell/2001/spmkp110.html>.
[9] Id.
[10] Michael K. Powell, Chairman, Federal Communications Commission, At The Association for Local Telecommunications Services, Crystal City, VA (Nov. 30, 2001). <http://www.fcc.gov/Speeches/Powell/2001/spmkp111.html>.
[11] OECD Report at 256 kbps; FCC at 200 kbps in 706 NOI. The UK Government, defines broadband speeds between 384 kbps and 10 mgps. See Office of the e-Envoy, UK Online: The Broadband Future, February, 2001.
[12] See Deployment of Wireline Services Offering Advanced Telecommunications Capability, Order on Reconsideration and Second Further Notice of Proposed Rulemaking, CC Docket 98-147, 96-98, 15 FCC Rcd 17,806 (2000).
[13] Jim Wagner, Cable Widens Lead in High-Speed Race, InternetNews (Nov. 1, 2001) http://www.internetnews.com.
[14] WSJ Article at B1.
[15] SBC Reports Third Quarter Results, SBC Communications, Inc. (Oct. 22, 2001). <http://www.sbc.com/News_Center>
[16] TELRIC is the pricing methodology used by the FCC that is currently being challenged before the U.S. Supreme Court. The Supreme Court will decide, inter alia, whether TELRIC is an illegal taking that violates the 5th Amendment to the U.S. Constitution. See Verizon Communications, Inc. v. Federal Communications Commission, Nos. 00-501, 00-555, 00-587, 00-509, and 00-602.
[17] Letter from Thomas J. Tauke, Senior Vice President, Verizon Communications, Inc., to Michael Powell, Chairman, Federal Communications Commission (Nov. 6, 2001) (“Tauke Letter”).
[18] The FCC Recognized these four systems as the main broadband platforms. “…[D]ata may travel from the sender to the recipient over various architectures and transmission paths such as copper wire, cable, terrestrial wireless networks, satellite, or a combination of these and other media.” 706 NOI at ¶2. Additionally, Power Line Technology, which can deliver between 1-2 Mbps to the user, is expected to have limited deployment by the end of 2001. See Consumer Broadband Satellite Services: A Global Analysis of key Players and Market Opportunities, Northern Sky Research, LLC, (Nov. 2001) at E-5.
[19] Thirty-six percent of respondents in the survey stated they were interested in broadband services but not at current prices. No Rush for U.S. Broadband Regulation – Report, Total Telecom (Nov. 30, 2001) <http://www.totaltele.com>.
[20] By year end 2001, the cable industry will have invested more than $55 billion since 1996 on plant upgrades to deliver more capacity, broadband services, and two-way technologies. Cable & Telecommunications Industry Overview 2001, National Cable & Telecommunications Association (“NCTA Report”), 1.
[21] See Jim Wagner, WorldCom is Now Truly Long Distance, InternetNews (Nov. 27, 2001) <http://www.internetnews.com>.
[22] See Section N of these Comments for a discussion on the FCC’s ability to address broadband under current law.
[23] Cable television providers have nearly 1.5 million circuit switched voice subscribers and more than 17 million business access lines. NCTA Report at 4. For example, Cox Communications, which is the fifth largest MSO in the U.S., is now the 12th largest CLEC, and AT&T Broadband currently has more than 900,000 residential local telephony customers. Id.
[24] See Tauke Letter for an in-depth discussion of Title I applicability.
[25] See §706(b) of the Telecommunications Act of 1996, Pub. L. 104-104, 110 Stat. 56 (1996), reproduced in the notes under 47 U.S.C. §157.
[26] 47 USC §160.
[27] Subsection (d) of Section 10 limits the Commission’s forebearance authority. 47 U.S.C. §160(d). The Commission may not forbear from applying the requirements of sections 251(c) or 271 of the Act until it determines that those requirements have been met. Section 251(c) addresses the incumbent’s obligations concerning negotiations with competitors, interconnection, unbundling, resale, and collocation, whereas Section 271 addresses the conditions precedent for Bell entry into the InterLATA market. The Commission could consider those states where the incumbent Bell has satisfied the §271 criteria as prima facie evidence that its §251(c) obligations are being met and justification to forbear from regulations necessary to achieve relief and parity in the broadband market.