Before the
National
Telecommunications and Information Administration
Notice,
Request for Comments ) Docket No.
on
Deployment of Broadband Networks )
and
Advanced Telecommunications ) 011109273-1273-01
RIN
0660-XX13
COMMENTS OF
EVEREST MIDWEST LICENSEE, LLC.
dba Everest Connections Corporation
Rachel Lipman Reiber
Vice President of Regulatory and
Government
Affairs
Everest Midwest Licensee, LLC. dba
Everest
Connections
4740 Grand, Suite 200
Kansas City, MO 64112
(816) 714–2972 Voice
(816) 714-2995 FAX
Before the
National
Telecommunications and Information Administration
Notice,
Request for Comments
on
Deployment of Broadband Networks Docket
No.
and
Advanced Telecommunications 011109273-1273-01
COMMENTS OF
EVEREST MIDWEST LICENSEE, LLC
dba Everest
Connections Corporation
Everest Midwest Licensee, LLC
(“Everest”) is a broadband service provider offering
telecommunications, cable and high speed Internet service via cable modem in
the Kansas City metropolitan area.
Everest is pleased to have the opportunity respond to the questions
posed by the National Telecommunications and Information Administration, U.S.
Department of Commerce, since broadband is our business.
The
majority owner of Everest is UtiliCorp United, Inc., which provides electric
and gas distribution service in seven Midwestern states and has utility
operations in Australia, New Zealand and Great Britain. Utilicorp also has an
energy merchant trading business, Aquila.
Everest
began providing its facilities-based service to customers on January 25,
2001. In the ten and a half months
since Everest began providing service, it has passed approximately 15,000 homes
and has acquired more than 5,000 customers.
In addition to its Everest operations, Utilicorp also owns a controlling
interest in Unite, a broadband service provider in Kearney, MO, where it has
been successful at attracting 60% of all residential customers and 85% of all
business customers from the incumbent local exchange carrier. Everest also is an investor in Prarie iNet,
which uses unlicensed spectrum and antennae mounted on top of grain silos to
provide high speed Internet service to communities of less than 15,000 people
in Iowa, Illinois, and Missouri.
Everest is pleased to offer these comments from its vantage point as a
supplier of broadband services in urban and rural communities.
RESPONSES TO QUESTIONS POSED
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 considerations.
The primary policy consideration
in formulating broadband policy for the country should be promoting
facilities-based competition.
Facilities-based competition requires large amounts of capital
investment. This will not only benefit
the telecommunications sector of the economy, but will result in redundant
infrastructure, which is also a desirable policy outcome as we reassess our
homeland security needs. Providers who
chose facilities-based competition will undoubtedly offer multiple services to
consumers. Viable business plans for
facilities-based residential competition necessarily require that a provider
offer not only telecommunications service, but also cable and high-speed
Internet offerings.
Since broadband service providers
must obtain a cable franchise from the local franchising authority, the
franchise requirements contained in Sec. 621 of the Communications Act of 1934,
as amended, apply. The statute is very
clear in that it requires that service be provided to all residents, thus necessitating
ubiquitous deployment.
If
multiple providers exist, minimal regulation will be necessary. The wireless telecommunications market is a
good example of this. However, the
wireless industry never had a monopoly provider that was fully entrenched
before the market became saturated.
This is not true for either the landline telephone or the terrestrial
cable industries. While the ultimate
goal should be sunset of regulation, until new providers are able to gain a
toehold, laws and regulations must be in place to allow new entrants to compete
on a level playing field.
Thirteen
providers of telecommunications, cable and high speed Internet over terrestrial
facilities have recently announced the formation of the Broadband Service
Providers Association. The group has
identified as its three major barriers to entry (1) access to poles; (2) access
to multiple dwelling units and (3) access to programming. Breaking down these barriers to entry cannot
be accomplished without regulation. Unless these barriers to entry are removed,
facilities-based providers are going to have a difficult time breaking into
monopoly markets.
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.
Broadband services should be a
term of art, whose definition changes over time with technological
advances. Currently broadband should be
defined as a speed in excess of dial-up modem access. It probably should have a low-end speed of 125Kbps or 256Kbps
downstream. There are huge policy
implications concerning how broadband service is defined, particularly when
Congress or state legislatures are considering tax credits or loan programs to
incent providers to deploy broadband services.
Broadband must be defined. The
definitions must take into account affordability and availability of current
technology with a goal of pushing current technology to next generation speeds.
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?
It is difficult to make
determinations concerning the current status of supply and demand for broadband
services in the United States today.
There are many areas of the country where people want broadband
services, but those services are not yet available. In other areas, people may be able to choose between DSL and high
speed Internet access provided over cable modem, but may not find a need for
broadband service. People who are
accustomed to broadband access at their place of work find that they are not
satisfied until they have broadband access at home. For individuals who have a home office or who work at home in
lieu of commuting to work, high-speed access is a necessity.
Evidence of unserved demand is
most prevalent in Class II, III, IV and V cities. Since most providers are focusing on broadband deployment in
large metropolitan areas, end users in smaller cities are awaiting deployment
of broadband services in their communities.
Everest and UtiliCorp would like to expand its broadband service to
additional cities, but needs access to the venture capital markets to achieve
this goal. Likewise, Prairie iNet would
like to expand its operations and is hopeful that guaranteed loans will be
available to promote broadband deployment in rural areas. For remote, sparsely populated areas, it
appears that the best hope for broadband access may be wireless solutions,
similar to the Prairie iNet offering.
For some consumers, an additional
$39 – $49 for high speed Internet service is a deterrent. Yet Everest has found that many individuals
who had been using dial up service have decided to convert to high speed
Internet service, when they subscribed to Everest. Everest’s bundled pricing has made high speed Internet access
more affordable, particularly since our cable modem service may allow them to
eliminate a second line they had been using for dial-up Internet access and
does not require use of a separate Internet service provider. When offered as part of a bundled service
offering that includes telephone service and cable service, Everest has found
that the vast majority of our customers also subscribe to some level of high
speed Internet service. Everest’s
current product offerings include options for customers at 256Kbps downstream,
1.5Mbps and 3.0Mbps downstream. The
most popular offering appears to be the 1.5 Mbps downstream offering.
As soon as Everest begins
offering service in a municipality, and prior to either requesting or receiving
a determination that it is subject to effective competition, in accordance with
Sec. 623 of the Communications Act of 1934[1],
the incumbent cable company has made “promotional” offers to retain or win-
back customers that attempt to undercut Everest’s “everyday” low prices. These offers are not made available
franchise-wide, but only in neighborhoods where Everest has turned up its service. Everest believes that the “effective
competition” section of the statute should be modified to exclude the so-called
“local exchange carrier test” for effective competition, which was added by the
Telecommunications Act of 1996.
Legislative history makes clear that this section was enacted at the
behest of cable operators, who feared that the Regional Bell Operating
Companies (“RBOCs”) would enter the market with video dial tone. Cable operators feared the RBOCs, with their
embedded customer base and access to capital, would enter the market with a
huge advantage. Now, almost six years
after the Telecom Act was passed, the RBOCs who had entered the cable business
have exited that business, yet this anachronistic rule permits gives cable
operators the ability to engage in non geographically uniform pricing when a
new entrant has barely entered the market in a particular municipality. It also penalizes a broadband service
provider who offers telephony service[2]. If a new entrant doesn’t offer telephony
service, the incumbent cable company cannot not engage in geographically
non-uniform pricing until the franchise is at least 50 percent built-out and
all competitors have reached a combined penetration of 30 percent.[3]
Since broadband services are not regulated
at the state or federal level, Everest does not believe that rates and rate
structures for regulated telecommunications services have affected broadband
deployment by incumbents. From what it
has observed in the Kansas City metropolitan area, the growth in competition
for broadband and other services has not been slowed by existing rates and rate
structures for regulated telecommunications services. There is already robust competition between cable modem service
and DSL service, where DSL is available.
E. Do the interconnection, unbundling and resale
requirements of the Telecommunications Act of 1996 reduce incumbent local
exchange carriers’ (ILEC’s) incentives to invest in broadband facilities and
services?
As a
facilities-based CLEC, Everest has chosen not to answer this question.
1. Are
there investment disincentives attributable to the regulated rates for
interconnection, unbundled network elements and resold services?
Everest does
not believe that regulated rates for interconnection, unbundled network
elements and resold services serve as a disincentive to investment. Resale was
never intended to be a long-term entry strategy. In order for resale to be profitable, the discount would have to
be doubled to at least 40 percent.
While the UNE-P does provide economics that are economically favorable,
and some CLECs have opted to offer telephony service to residential customers
using this mode of entry, it would be dangerous to build a long-term business
case on a UNE-P strategy, since its legal future is far from settled. While Everest has purchased unbundled loops
to serve business customers, Everest, has not purchased unbundled loops to
serve residential customers because of the cable franchise requirements of Sec.
621 of the Communications Act.
Everest and
other broadband service providers face entirely different challenges than CLECs
offering telephony or telephony with DSL provided by leasing facilities from
incumbents. Everest believes that the
only way it is economical to undertake a last-mile build to residential
customers is for a provider to be able to provide additional services beyond
just telecommunications service.
Average monthly revenue per customer must be approximately $100 per month
and penetration must be in excess of 25% to justify a last-mile build plan.
2. To
what extent are those disincentives due to ILEC’s uncertainties about their
ability to recover the added network costs needed to accommodate potential
requests from competitors? What are the
magnitude of those additional costs?
What mechanisms could be used to share the risks of those costs
efficiently and equitably among ILECs, competitors or users?
As a
facilities-based CLEC, Everest has chosen not to answer this question.
3. To
what extent are the returns on ILECs’ investments in new infrastructure
uncertain? Is the uncertainty of
gaining an adequate return on each infrastructure improvement (attributable in
part to other firms’ ability to use those facilities to offer competing
services) significant enough to deter investment?
As
a facilities-based CLEC, Everest operates primarily over its own facilities,
but does purchase interconnection trunks from Southwestern Bell as well as some
T1s to serve business customers. The
TELRIC rates charged by Southwestern Bell for these facilities should be
sufficient to allow Bell to gain an adequate return on these wholesale
purchases.
4. What
are the principal strengths and weaknesses of the FCC’s total element long run
incremental cost (TELRIC) methodology?
What changes could be made to render TELRIC an effective deterrent to
the exercise of market power and conducive to efficient infrastructure
investment? Would it be possible to
construct an alternative methodology that would not depend on cost information
controlled by regulated firms?
As
a facilities-based CLEC, Everest does not have a lot of issues with TELRIC
pricing methodology.
F. Some have suggested that a regulatory dividing line
should be drawn between legacy “non-broadband” facilities and/or services and
new “broadband” facilities and/or services.
Is this a feasible approach? If
so, how would it work?
As
a facilities-based CLEC, this question does not really affect Everest. If non facilities based CLECs were only able
to offer advanced services if they built their own facilities, this would
severely limit the number of competitors offering service in competition with
incumbent telephone companies.
1. What
effects would change in the regulatory structure for broadband services and
facilities have on regulation and competition with respect to voice telephone
and other non-broadband services?
This is a
matter of economics. Telecommunications
companies that offer voice services alone will not generate enough revenue to
justify building their own facilities.
Everest believes that telecommunications providers who are restricted to
providing voice services only will not exist in five years.
2. If
ILECs deploy broadband services using a mixture of new and old facilities, will
competitors be able to use the older shared facilities that they previously had
access to?
If ILECs
deploy broadband services using a mixture of new and old facilities,
competitors should be able to use the older shared facilities to which they
previously had access.
3. If
ILECs deploy broadband facilities to replace portions of their existing copper
plant, will the displaced copper plant give competitors a viable opportunity to
offer alternative services? What would
be the annual costs to the ILEC (or to a purchaser of the displaced copper
plant) of a continuing obligation to maintain that plant?
As a
facilities-based CLEC, Everest has chosen not to answer this question.
4. What
regulations, if any, should apply to new broadband facilities and/or services
to ensure a competitive marketplace?
Since
broadband facilities are not lifeline facilities, there should be little, if
any regulation. However, services
should not be priced below total service long-run incremental cost.
G. To what extent have competitive firms deployed their own (a) transport, (b) switching, and (c) loop facilities? Are those investments limited to particular areas of the country or to particular portions of communities and metropolitan areas? What market characteristics must exist for competitors to make facilities-based investments? Do competitors have the ability to deploy their facilities in ways that minimize costs and facilitate efficient network design?
Everest
has deployed its own transport, switching and loop facilities, including loops
to residences. It is Everest’s plan to
build out the entire Kansas City metropolitan area. While it had been Everest’s original business plan to build out
Tulsa, OK, Minneapolis-St. Paul and Grand Rapids, MI, Everest has had to
contract its original business plans due to the lack of venture capital
available for competitive local telecommunications projects.
In terms of
whether investments are limited to particular portions of communities and
metropolitan areas, the telecommunications world has always been allowed free
entry and exit with no obligation to provide service to all classes of
customers or all portions of a community.
The ability to pick and choose ceases for broadband service providers
such as Everest, who are providing cable service in addition to
telecommunications service. Anyone who
holds a cable franchise must abide by Section 621 of the Communications Act of
1934 and cannot limit service territory to particular portions of a franchised
metropolitan area.
Certainly
the availability of venture capital will facilitate the emergence of broadband
service providers. However, because of
the massive losses suffered by investors who backed CLECs that did not have
solid business plans, any CLEC now seeking to attract investment capital is
going to be required to prove out their business plan in a pilot program before
it will receive investor backing.
While
competitors do have the opportunity to design their networks in the most
efficient way to facilitate the deployment of broadband services, the cost of
deploying a last-mile build is very expensive.
Municipalities require that all construction in newer neighborhoods be
underground, which is expensive.
Overhead deployment, while less costly than underground boring, is still
expensive, particularly when pole custodians require that each pole be
reengineered as part of the make-ready process. Everest has also encountered challenges with city zoning
regulations governing pedestals, power supply units and other equipment that is
necessary to provide service. Given a
choice, no one opts to have these structures in their yards. Zoning regulations that open up placement of
these essential structures to lengthy protest processes can result in a
decision not to build in a particular municipality.
H. What cable companies are currently conducting trials to evaluate
giving multiple Internet service providers access to broadband cable modem
services? Describe the terms and
conditions of ISP access in such trials.
What technical, administrative and operational considerations must be
addressed to accommodate multiple ISP access?
How can cable firms mange the increased traffic load on their shared
distribution systems caused by multiple ISPs?
Everest
currently is utilizing is own Internet service provider and has not opened up
its network to additional Internet service providers. Allowing multiple Internet service providers is challenging both
from a technical and customer service standpoint. It is also not economically viable for an independent start-up
last-mile provider to open up its network for wholesale purposes, since the new
entrant needs to maximize revenue its opportunities to justify a last-mile
build, when it has no embedded customer base.
I. What problems have companies experienced in deploying broadband services via wireless and satellite? What regulatory changes would facilitate further growth in such services? Is available spectrum adequate or inadequate? What additional spectrum allocations, if any are needed?
As a
facilities-based CLEC, Everest has chosen not to answer this question.
J. How should the broadband product market be
defined? What policy initiatives would
best promote intramodal and inter-modal broadband competition?
The broadband product market
should be defined in terms of downstream speed and upstream speeds and should
include the service provided by telecommunications (DSL), cable (high speed
Internet access provided cable modem) and wireless providers (MMDS). Everest urges the administration to back
policy initiatives that promote facilities based competition for the reasons
previously stated. This includes making
sure all types of providers have equal access to infrastructure, such as poles,
customers in all types of dwelling units, especially multiple dwelling units,
and equal access to programming, especially local sports programming. While the
ultimate goal is to allow the market to regulate itself, new entrants must be
given the opportunity to compete on a level playing field with products provide
have comparable service to end users. Incumbent telephony and cable providers
should not be allowed to exploit their customer base or access to programming
to the detriment of new providers.
K. Would it be appropriate to establish a single
regulatory regime for all broadband services?
Are there differences in particular broadband network architectures
(e.g., differences between cable television networks and traditional telephone
networks) that warrant regulatory differences?
What would be the essential elements of a unified broadband regulatory
regime?
At some point
a single regulatory regime for all broadband services may make sense. At this time it appears to be
premature. As long as digital
subscriber line service is provided over the copper loop, it makes sense to
maintain the regulatory differences that exist between telephony and
cable. A unified regulatory regime
should require that prices not be set below total service long run incremental
cost. As content becomes more of an
issue, there should be continuing concerns about exclusive arrangements between
content providers and vertically integrated infrastructure providers to ensure
that smaller unaffiliated companies are not prevented from gaining access to
programming.
L. Are there local issues affecting broadband deployment
that should be addressed by federal policies?
Please provide specific information or examples regarding these
problems. Should fees for rights of way
and street access reflect costs in addition to the direct administrative costs
to the municipalities affected? To what
extent do state laws and regulations limit municipalities’ ability to establish
nondiscriminatory charges for carriers’ use of public rights of way? Please discuss the most appropriate
relationship between federal, state and local
governments to ensure minimal regulation while removing disincentives or
barriers to broadband deployment.
There
are many local issues affecting broadband deployment. Obtaining franchises from municipalities has been a huge obstacle
for Everest. Sec. 253 of the
Telecommunications Act of 1996 permits states to manage their rights of way in
a competitively neutral nondiscriminatory manner, but most of the cities
Everest has dealt with have read that section of the Telecommunications Act of
1996 far more expansively than we believe Congress intended when it was
passed.
Legislation
addressing franchising and rights of way issues was passed in Missouri last
year. In Kansas, the telecommunications
industry introduced legislation that would have radically altered the existing
statutes governing franchises and access to the rights of way to provide
telecommunications service. Initially
the cities thought they could kill the bill and were not open to compromise. However, when it became apparent that the
bill had the votes to pass, the cities persuaded the leadership of the Senate
and the House to enact a moratorium against franchises with conditions
unfavorable to new entrants and a mandate that required the cities and the
providers would meet to try to hammer out compromise legislation prior to the
2002 legislative session. After more
than 30 hours of negotiation, the providers and cities have been able to agree
on a bill, which hopefully will pass as is, without amendments. That is a tall order in Kansas, as in
Congress and most state legislatures.
The most objectionable requirements that cities had been trying to
impose on providers prior to the moratorium were: requiring a franchise from
everyone using the right of way, including long distance companies and dark
fiber wholesalers; imposing franchise fees on long distance and DSL services;
imposing franchise fees based on linear foot occupancy of the right of way;
requiring minimum franchise fees, which are initially set based on linear foot
occupancy of the right of way, but have a floor set at the linear foot amount
even after customers are acquired and the franchise fee converts to 5 percent
of gross receipts. These minimum fees
have been set at $1.80 - $2.50 per linear foot, and based on current linear
foot occupancy have ranged from $15,000 to $30,000 per year.
The compromise
bill in Kansas and the bill enacted in Missouri also prohibit any in-kind
infrastructure requirements, such as excess conduit, as a condition to
obtaining a franchise. Excess conduit
requirements raise the costs for the second provider to enter the city, but
facilitate entrance for third, fourth and subsequent providers.
Both the
proposed Kansas legislation and the recent Missouri legislation allow the
cities to issue permits and to charge cost-based fees for use of the right of
way. In the past, these fees have not been cost based.
Based on our
observations in Kansas and Missouri, Everest believes that the best forum to
address franchise and rights of way issues may be at the state level. Everest has found it counter productive to
fight these battles on a municipality-by-municipality basis, but is not sure a
federal, one size fits all solution is in the best interests of all parties
involved.
M. Are there impediments to federal lands and buildings
that thwart broadband deployment?
Please provide specific data.
What changes, if any, may be necessary to give service providers greater
access to federal property?
Everest has
not attempted to serve any federal lands or buildings and therefore cannot
provide information on this question.
N. With respect to any proposed regulatory changes
suggested in response to the above questions, can those changes be made under
existing authority or is legislation required?
As indicated above, Everest believes that the local exchange carrier test should be eliminated from Sec. 623 of the Communications Act of 1934. Everest also believes that the sunset date for the regulations promulgated to implement Sec. 628 ( c ) of the Act should be extended and that the prohibition on exclusive programming contained in Section 628 (b) of the Communications Act of 1934, should be expanded to include terrestrial as well as satellite programming. Now, with broadband deployment in its infancy, most of the controversy has been focused on infrastructure and regulatory treatment issues. Content issues have presented themselves, particularly with regard to local sports programming. Content issues will continue to be challenging, particularly if vertical mergers occur between infrastructure owners and content providers.
CONCLUSION
Everest would be pleased to have
the opportunity to meet with NTIA officials to discuss our successes and the
challenges we face as we roll out our broadband services in the Midwest.
Respectfully
submitted,
Rachel
Lipman Reiber
` Vice President of
Regulatory and Government Affairs
Everest
Midwest Licensee LLC.
dba Everest
Connections
4740 Grand,
Suite 200
Kansas City,
MO 64112
(816) 714-2972
Voice
(816) 714-2995
FAX
Rachel.Reiber@everestgt.com
[1] 47 U.S.C. 541.
[2] 47 U.S.C. 541 (d) and 47 USC 541(l)(1)(D). As used in this section, the term “effective competition” means that a local exchange carrier or its affiliate (or any multichannel video programming distributor using facilities of such carrier or its affiliate) offers video programming services directly to subscribers by any means (other than direct-to-home satellite services) in the franchise area of an un affiliated cable operator which is providing cable service in that franchise area, but only if the video programming services so offered in that area are comparable to the video programming services provided by the unaffiliated cable operator in that area.
[3] 47 U.S.C. 541 (d) and 47 USC 541(l)(1)(B). As used in this section, the term “effective competition” means that the franchise area is (i) served by at least two unaffiliated multichannel video programming distributors each of which offers comparable vide programming to at least 50 percent of households in the franchise area; and (ii) the number of households subscribing to programming services offered by multichannel video programming distributor exceeds 15 percent of the households in the franchise area.