Before the

DEPARTMENT OF COMMERCE

NATIONAL TELECOMMUNICATIONS AND INFORMATION ADMINISTRATION

Washington, D.C. 20230

In the Matter of Notice, Request for Comments on Deployment of Broadband Networks and Advanced Telecommunications

Docket No. 011109273-1273-01

COMMENTS OF DYNEGY GLOBAL COMMUNICATIONS INC.

Dynegy Global Communications Inc. (“Dynegy”), by its attorneys, hereby submits its comments in the above captioned proceeding concerning the Request by the National Telecommunications and Information Administration (“NTIA”) for comments on the deployment of broadband networks and advanced telecommunications services.[1]

I. introduction

Dynegy is a subsidiary of Dynegy Inc., a Fortune 100 company and leading provider of energy and communications services and products in North America, continental Europe and the United Kingdom. For the 9 months ended September 30, 2001, the revenues of Dynegy Inc. rose 72% to $33.50 billion, reflecting the company’s strong performance in energy convergence operations. Dynegy Inc., through its assets and subsidiaries, has long been a forerunner in the development of competitive energy markets. The success and experience of Dynegy Inc. in the deregulated energy sector, which underwent transitions similar to what the telecommunications industry is now undergoing, positions Dynegy as a leader and trendsetter in the developing broadband market.

Dynegy is seriously committed to developing a state-of-the art facilities-based ubiquitous national and international broadband data communications network and has already devoted significant capital and resources to this end. In Europe, Dynegy acquired and is upgrading over 10,000 kilometers of fiber optic network with advanced optical switching equipment and technology. Dynegy’s European network reaches more than 22 cities in seven countries and features more than thirty strategically positioned collocation, data center and hub sites throughout Europe. Dynegy’s U.S. and European long-haul networks are linked via a transatlantic connection between London and New York.

In the United States, Dynegy completed its nationwide, optically switched, mesh network on time and under budget in October 2001. This network provides customers the most competitive offerings in the industry, based on reliability, speed and flexibility. The Dynegy network spans more than 16,000 route-miles and reaches forty four of the largest cities in the United States. Dynegy’s innovative network is the first to include Tellium optical switches and to deploy top-of-the-line Fujitsu dense wave dimension multiplexing (DWDM) optical equipment in a full-scale network build out.[2] Dynegy’s network can transport OC-x services of up to 10 gigabits of data per second.[3] The network’s mesh architecture provides a superior method to manage and route Internet traffic,[4] and allows the company to satisfy today’s customers’ continued demand for additional bandwidth capacity.

In addition, through a strategic relationship with Telseon, Dynegy is extending its network to metro distribution facilities in 18 metropolitan areas. Dynegy plans to extend its metro distribution into other major cities in 2002. The agreement with Telseon will provide Dynegy customers with multiple pathing solutions between and within metro areas to give them access to most major suppliers and consumers of wholesale bandwidth, including carriers, Application Service Providers (“ASPs”), Internet Service Providers (“ISPs”) and enterprise markets.

The cornerstone of a vibrant and competitive broadband market is a ubiquitous open network that allows interconnectivity among various types of service providers and customers on a technology neutral basis. Dynegy’s vision of the broadband market foresees an integrated approach to communications and information infrastructure. To this end, Dynegy has specifically designed and deployed an advanced network that, when interconnected with the ubiquitous network of incumbent carriers and the network of other competitive carriers, makes broadband services readily available to the masses.

II. discussion of specific questions

Dynegy has identified three questions raised by the NTIA that are of significant importance to the deployment of broadband services in the United States. Those questions are addressed below:

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.

The key to developing a vibrant broadband market is steadfast adherence to the open network principles embodied in the Telecommunications Act of 1996 (“the Act”).[5] The Act lays the groundwork for widespread interconnectivity between and among the individual networks of competing service providers in order to provide flexibility and ubiquity to emerging and incumbent carriers alike. The core provisions of the Act must be nurtured and vigorously enforced to bring the promise of broadband competition to a reality.

Dynegy, through its existing network, has created a robust platform capable of supporting a myriad of broadband services in the telecommunications marketplace. Dynegy has spent millions of dollars equipping its network to handle, quickly and efficiently, the large volumes of traffic that broadband demand will produce. It has concentrated its efforts on building an advanced, reliable “next generation” long haul network needed for transporting broadband communications throughout the United States and creating a local distribution network to move information between various aggregation points within its targeted metro areas.

Dynegy is firmly committed to controlling and managing its own network facilities. At the same time, Dynegy does not intend to – and indeed could not – “go it alone” in deploying a completely redundant facilities-based network. Dynegy’s experience in the energy convergence markets has taught that an “asset backed” strategy is core to the successful participation in a market such as the broadband market, but that an “asset smart” strategy is just as important. A successful broadband provider will deploy facilities where service considerations require and capital markets will allow, but must supplement that network with interconnectivity and cost-based access to the networks of the incumbent providers. This is the goal of the Telecommunications Act of 1996 and is both rational and economically justified.

In the broadband market, it is critical to be mindful that telecommunications do not begin or terminate in carrier POPs, or even in metro fiber rings. They begin and end with customers in the millions of homes, buildings and office parks around the nation. Getting broadband from the POP to these locations is the challenge that all telecommunications providers face today. Even for a carrier such as Dynegy, delivery of services to other carriers and enterprise customers requires that Dynegy be able to reach the hundreds of thousands of customer premises in each of its service markets. To do this, and satisfy customers’ demand, it is essential that high capacity loops, transport and dark fiber be readily available from incumbent carriers at TELRIC-based rates.

Just as in emerging energy markets, where Dynegy espoused “win-win” solutions to perplexing problems of access to monopoly facilities, we envision that providing network access to competitive service providers will also benefit the incumbents in the long run. Wholesale telecommunications is and always has been an important and viable business strategy. Cost-based, wholesale access to the incumbent networks will increase the number of players, stimulate demand, encourage investment and deployment of new broadband applications, and promote the growth of the broadband market. Open ubiquitous networks enjoy more rapid acceptance and development than closed networks. Such networks also support the “business case” for deployment by an incumbent carrier, because the assurance of wholesale use helps to guarantee that the capacity will be used for revenue generating purposes, even if the incumbent’s retail market share declines. The engendered competition made possible by wholesale availability, results in lower prices and hence a larger market share for broadband services. Thus, incumbent carriers will gain from an increase in users, both on the wholesale level and retail level. This “growing the pie” approach will benefit incumbents, new entrants, new technology developers and manufacturers, and ultimately consumers, through not only new product offerings but also continued improvements in the productivity of the American economy.

The practical reality is that the kind of ubiquity necessary for effective broadband services can only be created through interconnectivity both with other competitive carriers’ networks and the incumbent networks. Government policy must ensure that meaningful cost-based access remains for these incumbent network facilities most likely to bring broadband to consumers; to do otherwise would impede expansion and innovation, and could kill the nascent competitive broadband industry.

B. Do the interconnection, unbundling, and resale requirements of the Telecommunications Act of 1996 reduce incumbent local exchange carriers’ (“ILECs’”) incentives to invest in broadband facilities?

In the 1996 Act, Congress sought “to provide for a pro-competitive, de-regulatory national policy framework designed to accelerate rapidly private sector deployment of advanced telecommunications and information technologies and services to all Americans by opening all telecommunications markets to competition.”[6] One of the most important goals of the 1996 Act was to speed competition to the traditionally monopolistic market for local telecommunications services.[7] In order to bring competition to this market, Congress contemplated competitive entry by three means– use of a competitor’s own facilities, use of unbundled elements of the incumbent local exchange carrier’s network, and resale of the incumbent’s service – and it included provisions to prevent incumbent carriers from blocking competitive entry by any of these means.[8] The fundamental premise of the Act is that by encouraging all three forms of competition simultaneously, competitors could enter the market rapidly and bring consumers the benefits of new services, lower prices and more powerful communications capabilities.

As Dynegy previously explained, purely facilities-based competition is not the only desirable method of competition. Many, including Chairman Powell, hold a strong belief that facilities-based carriers provide important competitive benefits. However they are also realistic enough to understand that the other two means of entry play important roles in entering a market for many carriers.[9] In fact, allowing and facilitating non-facilities-based market entry will increase the number of players in the telecommunications market and promote competition. Particularly in light of the September 11, 2001, tragedy it is important to recognize that the presence of multiple competitors each with varying degrees of facilities, is necessary to assure that alternative networks are available in emergency situations. The magnitude of the September 11 crisis showed that redundant networks are not a competitive luxury, they are a necessity. On that day, Verizon was able to route and reroute an enormous volume of calls because of its interconnection with the networks of competitive carriers. CompTel, an industry association representing competitive telecommunications providers and their suppliers in the United States, pointed out in a letter to Chairman of the FCC, Michael Powell, that without the redundancies and innovative economies of scale, we may not have had as rapid a recovery and rescue effort as was accomplished in the aftermath of the horrendous attacks on our country.[10] Redundancy and finding economically efficient routings every hour of every day, be it for power, natural gas, or telecommunications traffic, is the best way to develop the flexibility necessary to reroute traffic and take other measures to keep service intact in an emergency.

Despite ILEC allegations, there is no sound evidence to support claims that regulated rates for interconnection, unbundled network elements, and resold services create disincentives for the deployment of advanced network facilities. The ILECs’ ability to recuperate their costs under the standards of the Act has not been a disincentive to the ILECs’ investment in broadband infrastructure. On the contrary, a review of the largest ILEC’s 10K shows that ILEC capital expenditure on broadband infrastructure increased at record paces since the 1996 Act. This investment was spurred by a need to compete with the tremendous capital infusion that fueled the entry of many competitive carriers into the marketplace.

History shows that, ILECs deployed facilities and services much faster in response to competition than they do in a monopolistic or oligopolistic environment. The FCC recently found that when faced with direct competition, ILECs accelerate their deployment of new and innovative technology. A case on point is the observation made by the Commission’s Cable Services Bureau that the ILECs’ aggressive deployment of DSL in 1999 was attributable in large part to the deployment of cable modem service. The Bureau noted that the ILECs had possessed DSL technology since the late 1980s, they did not however offer the service out of concern that it would negatively impact their other business. The deployment of cable modem service, however, spurred the ILECs to offer DSL or risk losing potential subscribers.[11] The ILECs most certainly were reacting to the innovations and advances in the cable industry and the competitive telecommunications industry, the latter of which offered services even more comparable and thus more threatening to the ILECs’ services, than the cable industry. In July 1999, Bell Atlantic announced that it would double its deployment of DSL during 2000.[12] In the same month, Ameritech launched its own DSL program, and GTE announced that it was accelerating DSL deployment.[13] On October 18, 1999 SBC announced the launch of its Project Pronto, a $6 billion initiative to transform the company over a period of three years into the largest single provider of advanced broadband services in America.[14]

SBC chose to announce its Project Pronto at a time when competitive carries were entering the telecommunications market at record numbers, and when DSL carriers like Covad and JATO were making huge investments in the deployment of broadband infrastructure and services. In fact, SBC’s Securities and Exchange (“SEC”) 10-K for 1999 declares that its “capital expenditures in the wireline segment increased by 17.2% in 1999 compared with 1998 due primarily to DSL, digital and broadband network upgrades[.]”[15] At that time, companies like Covad Communications, were the darlings of the markets and the ILECs were scrambling to keep pace with their innovative services and advanced networks.[16] Once the market for independent DSL providers collapsed, SBC pulled back on the deployment of DSL services and increased the price of its service.

Dynegy would also like to emphasize that ILEC investment in broadband infrastructure and applications mostly occurred after the passage of the 1996 Telecommunications Act, with full knowledge that the incumbents’ networks would be subject to the interconnection requirements of the Act. If the cost of providing interconnection to a multitude of requesting competitive carriers was irrecoverable, certainly ILECs would not have spent their money on updating and building out their networks.

C. 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?

Dynegy opposes any such distinction at this time. The telecommunications marketplace is more dynamic, the services are more innovative and the technology is more integrated than a bifurcated approach would allow. As a result, any attempt to confine services into regulatory “boxes” would be doomed to fail and would create paralyzing uncertainty in a regulatory environment that desperately needs more, not less, certainty. Moreover, the suggested approach results from the fundamentally flawed premise that the Act is intended to bring POTS voice competition, and intends to deny competition in advanced services such as broadband. To confirm the Act’s requirement only to “legacy” voice services would be to trash the competitive landscape for precisely the innovative and most useful services that consumers are demanding from their service provider.

The government should not take a bifurcated approach to the Act’s requirements. In fact, it is extremely important at this early stage that competitive carriers have the ability to utilize all the network efficiencies built up by the incumbents during the period of sanctioned monopoly. After all, these networks were built in the regulated environment with guaranteed returns with the intent that they benefit the customers who were paying the monopoly’s bills, and as an exclusive tollgate for the incumbents or later barrier to entry for the benefit of incumbents.

In addition, even if it were a good idea, a bifurcated approach would be doomed to failure. No new technology is implemented on a flash cut basis. Similarly, new services typically are not introduced unless they are compatible with and preferably integrated with existing services. With the increased deployment of multifunctional technology, it is becoming harder to draw the distinction between broadband services and POTS. In the context of the FCC’s collocation procedures, competitive carriers have pushed for rules allowing them to collocate multifunctional equipment that not only provides them access to UNEs and/or interconnection, but that has other related functionality as well. The regulatory treatment of such equipment is particularly important in the development of competition because modern technology is eradicating the need for separate transmission, multiplexing, switching, and information services equipment, to name a few examples. Subjecting broadband services to a different set of technology-specific regulation will hamper the ongoing improvements and innovations that have flourished under existing technology-neutral rules. Hampering ongoing developments hampers the recovery of the American economy from current recession. It needs to be borne in mind that this recession is in large part a retraction in technology deployment. Technology deployment has retracted in large part because of lagging broadband deployment that occurred once the “heat” of competition temporarily receded. The choice to go forward and to reinvigorate competition or to retrench and allow the incumbent monopolies more freedom to restrict entry should be clear as a bell. This Nation cannot retrench, it must go forward.

Because networks work together in an integrated way that make it hard to distinguish between broadband and non-broadband, even if it were possible, the regulatory and technical attention necessary to “police the line” is overwhelming. The FCC spent over six months to review the new technical challenges created by SBC’s Project Pronto in the context of the fusion between analog and broadband services. This effort led only to an interim solution that was specific to SBC. The Commission then launched a specific rulemaking to address the problems and, over one year later, is still grappling with the issue. Dynegy notes this progression not to denigrate the tremendous efforts of the FCC and its staff to confront these vexing issues, but only to illustrate the resource commitment necessary to separate, let alone define what is “advanced” service equipment and what is POTS equipment. Both technologies are used in an integrated manner and therefore arbitrary regulatory separations are not advisable. In any event, over time, with additional network and technological evolution, any such distinctions would rapidly blur, undoing the handiwork expended in constructing the distinction in the first place.

III. conclusion

The Department’s request for comments comes at a critical juncture in the deployment of broadband and related technologies. Experience under monopoly regimes has proven that investment in new technologies takes a back seat to protection of investment in old technologies. Incumbents attempt to protect market share rather than expanding the pie for all entrants. Broadband is no exception to these rules.

As shown above, despite the emergence of new broadband technologies such as ISDN, deployment by incumbents was muted until new competitors entered the market in earnest. And while incumbents warmed up to the fact that they needed to deploy in order to compete, they almost uniformly made it difficult for competitors to access in a timely and cost-effective manner essential, last-mile facilities that under law had to be shared. As a result, competitive broadband deployment has faltered, and along with it a host of new technologies that depended on the availability of broadband.

The failure of those technologies is a significant factor in this Nation’s current recession, as software, consulting services, hardware and associated industries faltered. In large part, this faltering was not due to lack of conceptual merit, but to lack of deployment capabilities, as only a fraction of what had been predicted in terms of the availability of broadband actually materialized.

We as a Nation are at a precipice. We can turn back, and turn over control of the broadband services that will be critical to our economy in future decades to the regulated monopolies – ironically, not as regulated monopolies, but as straightforward monopolies with all the inherent power of monopolies – and trust that they will do the right thing as unregulated monopolies. Or, we can require that these monopolies share essential facilities under reasonable terms, conditions and rates, and encourage them to act in a manner consistent with facilitating broadband competition until that competition is robust enough not to need regulatory assurances of access.

The choice is simple: go back to the old way, under which a few service providers provide a few services for monopoly prices; or move forward to foster a competitive market brimming with new technological offerings that spur productivity in the U.S. economy. The choice is obvious, and should guide the answer to each of the questions posed by the Department.

Respectfully submitted,

Dynegy Global Communications, Inc.

By:

Steven A. Augustino

Leila M. Baheri

KELLEY DRYE & WARREN LLP

1200 19th Street, N.W., Suite 500

Washington, DC 20036

(202) 955-9600

Its Attorneys

January 9, 2002

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[1] 66 Fed. Reg. 57941 (2001).

[2] The introduction of DWMD has enabled carriers to dramatically increase the data carrying capacity of an existing fiber optic network at minimal additional cost by separating the light signal into narrower and narrower frequency bands of light, each frequency carrying a separate signal operating as though it were a separate light pipe currently supporting as much as OC-192 transmission capacity (9.953 Gbps).

[3] Dynegy’s network can carry 176 DWDM wavelengths. Each wavelength is equivalent to an OC-192, which can carry 129,024 calls at one time.

[4] A mesh network is a network that provides a direct connection between each site and every other site. In this type of network, each transmission might be routed over an alternative path should the primary (direct) path between the two sites be either congested or in a state of failure. Newton’s Telecom Dictionary, 16^th Edition.

[5] See Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996).

[6] S. Conf. Rep. No. 104-230, 104th Cong., 2d Sess. at 1 (1996) (1996 Conference Report).

[7] See Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, CC Docket No. 96-98, First Report and Order, 11 FCC Rcd 15499, 15505-06, ¶ 3 (1996) (Local Competition First Report and Order), aff’d in part and vacated in part sub nom. Competitive Telecommunications Ass’n v. FCC, 117 F.3d 1068 (8th Cir. 1997), aff’d in part and vacated in part sub nom. Iowa Utils. Bd. v. FCC, 120 F.3d 753 (8th Cir. 1997), aff’d in part, rev’d in part, and remanded sub nom. AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366 (1999) (Iowa Utilities Board).

[8] See 47 U.S.C. §§ 251(c)(2) (requiring incumbent LECs to provide interconnection with the facilities and equipment of any requesting telecommunications carrier on just, reasonable, and nondiscriminatory rates, terms, and conditions), 251(c)(3) (requiring incumbent LECs to provide nondiscriminatory access to network elements on an unbundled basis on just, reasonable, and nondiscriminatory rates, terms, and conditions), 251(c)(4) (requiring incumbent LECs to offer services for resale at wholesale rates, and generally forbidding incumbent LECs from prohibiting or imposing unreasonable or discriminatory conditions or limitations on resale).

[9] See Remarks of Michael K. Powell, Chairman, FCC, at the Association for Local Telecommunications Services, November 30, 2001.

[10] October 31, 2001 CompTel Letter to Michael K. Powell.

[11] See, e.g., Cable Services Bureau, Broadband Today: A Staff Report to William E. Kennard, Chairman, Federal Communications Commission, Oct. 1999 (“Broadband Today”) at 27.

[12] Bell Atlantic Corp. Bell Atlantic Corp. Doubles Infospeed DSL Deployment (press release).

[13] GTE Corp., GTE to offer lower-priced, higher speed Internet access service while accelerating deployment on 17 states (press release), July 22, 1999.

[14] SBC Communications Inc., SBC Launches $6 billion Broadband Initiative (press release), Oct. 18, 1999.

[15] SBC Communications, Inc. 10-K, 03/10/2000.

[16] The price of Covad’s stock, like that of many other competitive broadband service providers, has taken a nosedive in the past year. Covad saw its shares trade as high as $66.25 in 1999, only to be delisted from the Nasdaq in July 2001, when its stock plunged to 35 cents a share.