As the Commission is well aware, the opening of local
telecommunications markets to competition has taken far longer than
expected. To date, no BOC has demonstrated that any local market is
open to competition. Consequently, no BOC has been allowed to enter
the in-region inter-LATA services market. Absent Commission action,
however, on February 8, 2000, the structural and behavioral
safeguards applicable to BOC provision of inter-LATA information
services will automatically sunset. As a result, if and when the
BOCs – which retain substantial market power – are allowed to enter
the in-region inter-LATA information services market, they will be
able to do so without ever complying with the structural and
behavioral safeguards adopted by Congress. Immediate Commission
action is needed to avoid this result, which would effectively
nullify the three-stage process adopted by Congress in the 1996
Act.
Substantial evidence exists that extending the statutory
structural safeguards is necessary to prevent anti-competitive
abuses. As shown herein, the BOCs currently are using their control
over the local network to thwart the ability of independent ISPs to
compete. If the BOCs are allowed to provide inter-LATA information
services, they will have an even greater ability and incentive to
harm competition in the emerging market for broadband Internet
access service.
As the Commission, the courts, and Congress have recognized,
non-structural safeguards are not adequate to deter BOC
anti-competitive abuses. Rather, the comprehensive regime of
structural and behavioral safeguards set forth in Section 272 is
necessary to ensure that BOC entry does not harm competition in the
market for Internet access and other inter-LATA information
services.
In order to effectuate Congress’s intent to allow BOC entry
without harming competition in the inter-LATA information services
market, the Commission immediately should issue an order extending
for two years – until February 8, 2002 – the sunset date for
the pro-competitive Section 272 regime applicable to BOC-provided
in-region inter-LATA information services.
II. STATEMENT OF INTEREST
II.STATEMENT OF INTEREST
Commercial Internet eXchange Association. CIX is a trade
association that represents some 150 Internet Service Provider
(“ISP”) member networks who handle over 75% of the United States'
Internet traffic.(2) CIX works to facilitate global connectivity
among commercial ISPs in the United States and throughout the
world.
Information Technology Association of America. The
Information Technology Association of America is one of the
principal trade associations of the nation’s information technology
industries. Together with its forty-one regional technology
counsels, ITAA represents more than 26,000 companies throughout the
United States. ITAA’s members provide the public with a wide variety
of information products, software, and services. Many of ITAA’s
member companies provide Internet access and other information
services.
III. CONGRESS DID NOT INTEND FOR THE COMMISSION
TO ALLOW THE PRO-COMPETITIVE SECTION 272 SAFEGUARDS TO SUNSET
BEFORE THE BOCs ENTERED THE INTER-LATA
INFORMATION SERVICES MARKET
III. CONGRESS DID NOT INTEND FOR THE COMMISSIONTO ALLOW THE
PRO-COMPETITIVE SECTION 272 SAFEGUARDS TO SUNSET BEFORE THE BOCS
ENTERED THE INTER-LATAINFORMATION SERVICES MARKET
In enacting the 1996 Act, Congress sought to create a framework
for BOC entry into the inter-LATA services market. Allowing the
Section 272 pro-competitive safeguards, including the separate
affiliate requirements applicable to BOC inter-LATA information
services, to sunset before the BOCs are allowed to enter the
inter-LATA information services market would upset the balance
struck by Congress.
First, Congress provided that the existing prohibition on
BOC provision of inter-LATA services – including inter-LATA
information services – would continue until the BOCs complied with
the requirements, set forth in Section 271 of the Act, designed to
open local telecommunications markets to competition.(3) This
approach reflected Congress’s recognition that, as long as the BOCs
enjoy unfettered monopoly power in the local exchange market, the
risk of anti-competitive harm to the adjacent inter-LATA markets is
too great to allow BOC entry under any circumstances. The nascent
state of the dial-up Internet access market and the need to foster
competitive development of the Internet backbone made it
particularly important to prevent BOCs from leveraging their local
exchange monopolies into the market for inter-LATA services.
Second, Congress recognized that, even after they satisfy
the Section 271 requirements, the BOCs will continue to have market
power in the local telecommunications market and, therefore, the
ability to harm competition in the adjacent inter-LATA markets.(4)
Congress therefore provided that the BOCs initially must offer
inter-LATA services subject to structural separation(5) and rigorous
accounting(6) and non-discrimination safeguards.(7) This regime is
codified in Section 272. Significantly, Congress did not seriously
consider relying on non-structural safeguards, such as those adopted
by the Commission in the Third Computer Inquiry, to deter BOC
anti-competitive conduct.
Third, Congress recognized that it could not predict the
timing of the opening of the BOCs’ local markets and the subsequent
entry by the BOCs into inter-LATA markets. While Congress
established sunset periods for the structural and other safeguards,
it expressly granted the Commission authority to extend them.(8)
Thus, under the statutory scheme, structural and behavioral
safeguards governing BOC participation in the inter-LATA market
should be eliminated only when competition takes root in the local
telecommunications market.
At a minimum, Congress did not intend for the Section 272 regime
to sunset before the BOCs are allowed to enter the inter-LATA
information services market.(9) The biennial audit provisions of
Section 272(d) of the Act offer strong evidence of Congress’s intent
that BOC participation in the inter-LATA information services market
through a separate affiliate be subject to scrutiny before
allowing BOCs to provide such services on an integrated basis. The
audit is to be extensive, and include staff members from 40 state
regulatory commissions and the Commission.(10) However, neither
Congress nor the Commission anticipated that the BOCs’ intransigence
in opening even a single local market to competition would extend
four years beyond the Act’s enactment. Indeed, in establishing a
schedule for auditing the BOCs’ subsidiaries established pursuant to
Section 272(d), the Commission anticipated that “such a schedule
will allow at least one, and possibly two, audits before the sunset
provision of Section 272(f) is considered.”(11)
In sum, Sections 271 and 272 were premised on the prompt and
orderly opening of the BOCs’ local telecommunications markets, and
concurrent independent evaluation of BOC entry into inter-LATA
information services markets through separate affiliates.
Unfortunately, the critical assumption underlying the sunset regime
has turned out to be incorrect: forty-five months after the
enactment of the 1996 Act, not a single BOC has received Section 271
approval. Rather than opening their markets to competition, the BOCs
have initiated numerous – and, for the most part, meritless –
judicial challenges to virtually every order adopted by the
Commission implementing the local competition provisions of the 1996
Act. Consequently, there has been no opportunity to evaluate BOC
entry, with structural safeguards, into the inter-LATA information
services market, either through the statutory biennial audit or
other means.
Absent agency action, on February 8, 2000, the structural and
behavioral safeguards applicable to BOC provision of inter-LATA
information services will sunset automatically. As a result, the
BOCs will be allowed to enter the in-region, inter-LATA information
services market without ever complying with the structural and
behavioral safeguards adopted by Congress. Whatever else
Congress may have intended, it plainly did not want to reward the
BOCs’ foot dragging in opening their local markets to competition by
allowing them to evade a regulatory regime designed to deter
competitive abuse in the inter-LATA information services market.
IV. The BOCS HAVE THE ABILITY AND INCENTIVES TO ACT
ANTI-COMPETITIVELY IN THE INTER-LATA INFORMATION SERVICES
MARKET
IV. THE BOCS HAVE THE ABILITY AND INCENTIVES TO ACT
ANTI-COMPETITIVELY IN THE INTER-LATA INFORMATION SERVICES
MARKET
There is significant evidence that the BOCs have acted
anti-competitively towards independent ISPs. If they are allowed to
enter the inter-LATA information market, their incentives to
continue such abuses will increase significantly.(12) Such
anti-competitive tactics could have an especially adverse impact on
competition in the market for broadband Internet access service
(e.g., Digital Subscriber Line service).(13)
A. The BOCs Have Engaged in Anti-Competitive Tactics Directed
Against Non-Affiliated ISPs
A.The BOCs Have Engaged in Anti-Competitive Tactics Directed
Against Non-Affiliated ISPs
In order for an ISP that is not affiliated with a local exchange
carrier to provide broadband Internet access service, it must obtain
DSL-conditioned lines. With a virtual monopoly on local lines in
their service areas, the BOCs control nearly all access to end users
who are the customers and potential customers of independent
ISPs.(14)
ISPs have been subject to anti-competitive tactics by the BOCs
with respect to the provisioning of facilities necessary to offer
competitive information services. These tactics include the slow
provisioning of and/or excessive pricing of DSL-conditioned lines
and improper product bundling. Individually and in combination,
these tactics have impeded the deployment of advanced services and
have seriously threatened the ability of many independent ISPs to
continue to offer service. If the BOCs are allowed to enter the
inter-LATA information services markets without structural
safeguards, their ability and incentive to act anti-competitively in
the advanced services market will increase significantly.
Despite the clear mandates of the Act and the Commission’s rules
that the BOCs provision DSL-conditioned lines to both their
competitors and their affiliates on a non-discriminatory basis, ISPs
often experience extraordinarily slow DSL-line provisioning,
resulting in an inability to serve end-users. In Utah, for example,
U S West precluded competitive providers from obtaining
DSL-conditioned lines until well after U S West began marketing and
rolling out its own DSL Internet services. Even when U S West
officially made DSL-conditioned lines available to competing ISPs in
Utah, provisioning was extremely slow. The Public Service Commission
of Utah, in response to at least complaint, is monitoring U S West’s
activities regarding the provision of DSL-conditioned lines.(15) In
New Mexico, U S West has failed to provide DSL service altogether,
largely because its anti-competitive MegaBits DSL tariff has been
challenged by competitors.(16) The slow provisioning of
DSL-conditioned lines, or the outright refusal to provide such
lines, will stymie competition in the provision of DSL transport
services. In turn, ISPs will be unable to obtain the cost savings
and service quality generally achieved in a competitive market.
The BOCs also have sought to impede competition by unlawfully
bundling advanced telecommunications services with information
services and customer premises equipment, despite the fact that the
Commission “has restricted bundling of CPE and enhanced services
with telecommunications services out of a concern that carriers
could use such bundling in anti-competitive ways.”(17) These
“restrictions not only prevent carriers from offering distinct goods
and/or services only on a bundled basis, but also prohibit carriers
from offering ‘package discounts,’ which enable ‘customers [to]
purchase an array of products in a package at a lower price than the
individual products could be purchased separately.’”(18)
Notwithstanding these restrictions, when a customer orders Bell
Atlantic’s Infospeed DSL service and Bell Atlantic.net Internet
service in combination, Bell Atlantic charges only $99 dollars for
its DSL modem, and waives the $99 service charge.(19) If the
customer orders Infospeed DSL, but selects a competing ISP, Bell
Atlantic imposes the $99 service charge and charges $325 for the DSL
modem.(20) Clearly, Bell Atlantic is violating the Commission’s
Rules by offering its DSL modem (in this case absolutely free) in a
package at a lower price than the individual products could be sold
separately (e.g., $325 for the DSL modem if not purchased with Bell
Atlantic.net ). Such extreme price disparities appear to violate the
Commissions Rules and are clearly designed to eliminate all
meaningful competition.
Many BOCs also waive, or heavily discount, fees and charges for
installation, activation, and modems.(21) Some BOCs also have
reduced the cost of DSL Internet service when a customer purchases a
package of other BOC-provided services. For instance, BellSouth
charges $50 for its FastAccess DSL Internet service when a customer
orders BellSouth Complete Choice® --but charges $59 when the
FastAccess DSL Internet service is purchased separately.(22)
B. If Granted Section 272 Authority, the BOCs Ability and
Incentive to Harm Competition in the Broadband Internet Access
Market Will Increase
TC "B. If Granted Section 272 Authority, the BOCs’ Ability and
Incentive to Harm Competition in the Broadband Internet Access
Market Will Increase
"\l2
The discriminatory practices of the BOCs clearly demonstrate that
they are attempting to use their existing monopolies as leverage
into the market for broadband Internet access services. Deployment
of broadband services to all Americans – which is a key policy goal
of Congress and the Commission -- will occur only if the competitive
ISP market that exists in the dial-up marketplace extends to the
broadband market.
These abuses have occurred at a time when the BOCs are permitted
to play only a limited role in the Internet access market. As a
result of the continuing prohibition on BOC provision of in-region,
inter-LATA services, the BOCs are allowed to provide only intra-LATA
connectivity and an intra-LATA gateway to the Internet.(23) If the
Commission grants the BOCs Section 271 authority, they will be able
to provide the full range of Internet services – including the
provision of end-to-end Internet access services and the provision
of Internet backbone capacity. Once the BOCs are allowed into these
markets, their incentive to use their remaining market power to
thwart competitors in the Internet market will be significantly
increased.
The ability of the BOCs to provide inter-LATA information
services also will increase the ability of the BOCs to act
anti-competitively. The BOCs, for example, will engage in joint
planning, joint development of products and joint sales and
marketing efforts, including joint product discounts that will
extend into the inter-LATA information services arena. BOC
integration would make it extremely difficult for regulators to
police the cost allocations of joint efforts, and would provide the
BOCs with critical information required to offer end-to-end services
that would not have to be shared with other competitors.
Finally, the BOCs’ ability to act anti-competitively is
especially great because of changes in the Internet access market
that have occurred since the enactment of the 1996 Act. When
Congress adopted the Act, the market for Internet backbone services
and dial-up Internet services were immature. The structural and
behavioral safeguards applicable to BOC provision of inter-LATA
information services reflect, in part, that recognition. At the same
time, the sunset period reflects the expectation that the market
would develop rapidly – limiting the need for the protection
afforded by the Section 272 safeguards.
In the years that have followed, however, consumers have begun to
migrate from dial-up to broadband Internet access services. The
broadband market is at approximately the same level of development
as the dial-up Internet access market was in 1996. Thus, the Section
272 competitive protections for the inter-LATA information services
market are as necessary today as they were in 1996.
V. STRUCTURAL SEPARATION, COUPLED WITH AN
ABSOLUTE PROHIBITION ON
DISCRIMINATION,
IS REQUIRED TO PREVENT BOC ANTI-COMPETITIVE ABUSES
V.STRUCTURAL SEPARATION, COUPLED WITH ANABSOLUTE PROHIBITION ON
DISCRIMINATION,IS REQUIRED TO PREVENT BOC ANTI-COMPETITIVE
ABUSES
There is only one effective means by which the Commission can
reduce the risk that BOC entry will adversely impact competition in
the inter-LATA information services market: require that, at least
initially, the BOCs provide these services consistently with the
structural, non-discrimination, and other behavioral safeguards
contained in Section 272 of the Act. Congress designed these
safeguards to: prevent cross-subsidization by BOCs of unregulated
markets from their monopoly position in regulated markets; prevent
discrimination by the BOCs against competitors; and to make
transparent the terms and conditions of transactions between BOCs
and affiliates.
These protections are essential to achieve Congress’s goal of
ensuring that BOC entry into the inter-LATA market does not
adversely impact competition. Continuation of the safeguards also
would be consistent with the Commission’s recognition, in numerous
contexts, that structural separation is necessary to prevent
anti-competitive abuses. The alternative – allowing the BOCs to
provide inter-LATA information services on an integrated basis,
subject only to Computer III non-structural safeguards – is
plainly inadequate.
A. Experience Demonstrates that Structural Separation Is the
Only
Means Proven Effective to Deter Anti-Competitive
Abuses
A.Experience Demonstrates that Structural Separation Is the
Only
The Commission has repeatedly recognized that structural
separation is essential to prevent carriers from using their control
of local exchange facilities to impede competition in the
information services market. The Commission initially considered the
appropriate regulatory regime to govern telephone company
participation in the market for information services (then called
data processing services) in 1970 in the First Computer Inquiry.
The Commission ruled that telecommunications carriers – other
than AT&T, which the Commission then believed was barred from
the market by a 1956 consent decree – could provide information
services through a structurally separate affiliate. The agency
reasoned that the goal of preventing carriers that possessed
monopoly power in the local telecommunications market from engaging
in anti-competitive conduct:
[w]ill be achieved best by maximum separation of
activities that are subject to regulation [i.e., provision of
telecommunications services] from non-regulated activities involving
data processing. Because of the increasing involvement of interstate
communications facilities and services in the provision of data
transmission, the need for such separation is apparent and
urgent.(24)
The Commission affirmed the need for structural separation for
BOC entry into the information services market in the Second
Computer Inquiry, which the agency initiated in 1979. The
Commission determined that AT&T could provide information
services (which the Commission referred to as enhanced services), so
long as it did so through a separate affiliate.(25) The Commission
emphasized that accounting and behavioral safeguards alone would not
be sufficient to deter cross-subsidization and
discrimination.(26)
On the eve of the AT&T divestiture, the Commission ruled
that, to the extent the divestiture decree permitted the BOCs to
provide enhanced services, the Computer II structural
separation requirements would apply. Once again, the Commission made
clear that structural separation is the only viable means of
deterring the BOCs from using their local exchange monopolies to
dominate the market for enhanced services. As the Commission
observed:
[I]f the RBOCs are permitted to market . . . enhanced services on
an unseparated basis, there are opportunities to engage in
cross-subsidization . . . . The provision of enhanced services could
rely on the same marketing, installation and maintenance, and
operations support organizations [as the BOCs’ basic
telecommunications operations]. There would be opportunities to
place enhanced service software within the network. Identifying
these costs would be very difficult. . . . As we have stated
previously, accounting alone cannot provide the public as much
protection against improper cost shifting as structural separation
can. With separate structure, the existence of joint and common
operations is limited, reducing the opportunities to shift costs. In
addition, separate structure increases the detectability of any
cross-subsidization that does occur…
The separate organization requirement should alleviate most
concerns about anti-competitive practices by the BOCs against
suppliers of enhanced services since the BOCs would enter, if at
all, on the same terms and conditions as other suppliers.
Anti-competitive conduct directed against enhanced service providers
can be controlled by structural separation in a manner that may not
be effective with accounting separation alone. If a BOC’s separate
entity is required to obtain access to the network in the same
fashion as would a competing supplier, the provision of inferior
access to a BOC rival would be much easier to detect. In addition,
the design of the BOCs’ own enhanced services would be easier to
detect since separate structure could help to reveal any illegal
information transfers.(27)
The concerns identified by the Commission in the 1980s regarding
BOC entry into the market for enhanced services –
cross-subsidization, discriminatory treatment of competitors, and
the difficulty of deterring these activities through nonstructural
safeguards alone – remain valid today.
The Commission’s imposition of structural separation in other
contexts provide further support for preserving the structural
separation regime that Congress established in Section 272 to govern
BOC entry in the inter-LATA information services market. For
example, in its recent order approving the merger of SBC and
Ameritech, the Commission required that the merged company “provide
all Advanced Services through a separate Advanced Services
affiliate.”(28) The Commission stated that the establishment of an
“advanced services separate affiliate will provide a structural
mechanism to ensure that competing providers of advanced services
receive effective, nondiscriminatory access to the facilities and
services of the merged firm’s incumbent LECs that are necessary to
provide advanced services.”(29)
BOC entry into the advanced telecommunications services market
raises the very same issues as BOC entry into the inter-LATA
information services market. In both cases, the BOC can use its
control over local exchange facility to impede competition in an
emerging adjacent market. In the case of advanced services, the
Commission has recognized the need for structural separation to
prevent such abuse. The Commission should take the same approach to
in-region inter-LATA information services.(30)
B. Non-Structural Safeguards Are Not Adequate to Deter
BOC
Anti-Competitive Abuses
B.Non-Structural Safeguards Are Not Adequate to Deter BOC
If the Commission does not extend the Section 272 sunset
period, it presumably will take the position that BOC provision of
inter-LATA information services will be subject only to the
Commission’s Computer III non-structural safeguards.(31)
This regime, however, is clearly inadequate.
As an initial matter, the Computer III regime does not
contain a critical protection found in Section 272: the absolute
prohibition on BOC discrimination in favor of its own advanced
service affiliate. As a result, if the Section 272 regime is allowed
to sunset, the BOCs are likely to justify a wide range of plainly
discriminatory conduct in the provision of basic telecommunications
services – including advanced services – as “not unreasonably
discriminatory” and, therefore, permissible. This would have an
adverse impact on ISPs that remain critically dependent on the
underlying transport facilities provided by the BOCs. The absence of
this important protection, standing alone, is sufficient to justify
continuation of the Section 272 regime.
In addition, the Computer III regime provides for the use
of non-structural safeguards in lieu of structural separation. The
Court of Appeals, however, has twice found that this regime is
inadequate to prevent BOC anti-competitive abuse in the information
(enhanced) services market.
In California I,(32) the Ninth Circuit rejected the
Commission’s first attempt – in the original Computer III
Order – to eliminate the BOC enhanced services structural
separation requirement. While the court held that non-structural
safeguards “may be effective” in deterring BOC access
discrimination,(33) the court found that the agency had failed to
demonstrate that these safeguards were adequate to deter BOC
cross-subsidization.(34) The court further rejected the agency’s
contention that any risk of BOC anti-competitive conduct would be
“minimized” by the use of non-structural safeguards. The
Commission’s consistent position before Computer III, the
court observed:
has always been that monitoring and enforcement problems make
cost-accounting regulations an ineffective tool in detecting
cost-shifting. Should the BOCs be free to integrate their basic and
enhanced operations, nothing in the record suggests that the FCC (or
state regulators) will have any less difficulty than before in
determining whether costs have been misallocated.(35)
In California III,(36) the Ninth Circuit again rejected
the Commission’s conclusion that nonstructural safeguards were
sufficient to deter BOCs from acting in an anti-competitive fashion.
The Commission has expressed the view that the California III
decision allows the BOCs to provide telecommunications and
information services on an integrated basis, so long as they file
“comparably efficient interconnection” (“CEI”) plans. As ITAA
previously has demonstrated, however, the most reasonable
construction of the court’s decision is that it struck down the
Commission’s effort to replace structural separation with
non-structural safeguards.(37)
While the Commission has waived the structural separation
requirements,(38) the agency’s findings in Computer II remain
legally binding. As a result, the Commission’s assessment of the
merits of extending the Section 272 safeguards must begin with the
assessment, made in Computer II, that non-structural
safeguards are inadequate to prevent BOC anti-competitive abuse in
the information services market.
The Computer III regime is even less effective now than at
the time of the Court of Appeals decision. The Commission has ruled
that the BOCs are no longer required to obtain advanced Commission
approval of their CEI Plans, which are designed to ensure that the
BOCs provide rival ISPs with equal access to the regulated network
services that underlie the BOCs information service offerings.(39)
The Commission, moreover, is considering further weakening the
Computer III regime by completely eliminating the CEI Plan
requirement.(40)
In addition to departing from decades of regulatory treatment of
BOC provision of enhanced services, the abandonment of structural
safeguards for non-structural protections would have particularly
harmful effects in the Internet services market. Through joint cost
allocation, the BOCs will be able to extend their local monopolies
into the potentially competitive high speed Internet services market
by allocating costs in a manner that makes it impossible for ISPs to
offer their services at competitive rates. The significant
possibility of cross-subsidization between BOC telecommunications
inputs and the BOC Internet offerings could have the effect of
severely limiting the ability of non-affiliated ISPs to compete. In
turn, the innovation and competition that exist in the ISP market,
in large part responsible for the development of the Internet, would
be at risk. While constituting violations of the Joint Cost
Order,(41) without structural separation, these activities would be
exceedingly difficult for the Commission to detect.
VI. THE COMMISSION SHOULD EXTEND THE SUNSET DATE
FOR THE SECTION 272 STRUCTURAL, NON-DISCRIMINATION,
AND OTHER BEHAVIORAL SAFEGUARDS GOVERNING BOC
PARTICIPATION
IN THE IN-REGION, INTER-LATA INFORMATION SERVICES
MARKET
VI.THE COMMISSION SHOULD EXTEND THE SUNSET DATEFOR THE SECTION
272 STRUCTURAL, NON-DISCRIMINATION,AND OTHER BEHAVIORAL SAFEGUARDS
GOVERNING BOC PARTICIPATIONIN THE IN-REGION, INTER-LATA INFORMATION
SERVICES MARKET
In light of the above, CIX and ITAA urge the Commission to issue
an order extending for an additional two years the sunset date for
the pro-competitive safeguards governing BOC provision of in-region
inter-LATA information services contained in Sections 272(b),(c),
(d) and (g) of the Communications Act, 47 U.S.C. §272(b),(c), (d)
& (g).(42)
Grant of a two-year extension is the best means to achieve
Congress’s goal of ensuring that adequate safeguards are in place at
the time the BOCs enter the inter-LATA information services market,
while providing the Commission adequate opportunity to assess the
competitive effects of BOC entry into inter-LATA information
services. In effect, this approach gives effect to the sunset regime
established by Congress, while reflecting the fact that the advent
of local competition – and the accompanying BOC entry into the
in-region inter-LATA market – has taken substantially longer than
Congress anticipated.
In addition to the requested extension, CIX and ITAA further urge
the Commission to initiate an inquiry, not later than August 8,
2001, to assess both the level of competition in the intra-LATA
telecommunications market and the impact that BOC entry has had on
the currently competitive information services market. This inquiry
will provide a foundation for the Commission to determine, prior to
February 8, 2002, whether competition has developed to a point at
which the congressionally crafted structural and behavioral
safeguards applicable to BOC provision of in-region, inter-LATA
information service are no longer necessary.
The Commission plainly has legal authority to grant this request.
Section 271(f)(2) states unambiguously that the Commission may
extend the four-year sunset period applicable to BOC provision of
inter-LATA information services “by rule or order.” Thus, while the
Commission may want to seek public comment, it need not initiate a
rulemaking proceeding.(43) Nor is the Commission precluded from
modifying the Section 272 regime – for example, by continuing to
apply it only to BOC provision of in-region inter-LATA information
services. Section 272(f)(3) makes clear that the Commission retains
the full measure of its pre-existing authority “to prescribe
safeguards consistent with the public interest, convenience, and
necessity.”(44)
VII. CONCLUSION
VII.CONCLUSION
For the foregoing reasons, the Commission should issue an order
extending until February 8, 2002 the sunset date of the
structural, non-discrimination and other behavioral competitive
safeguards governing BOC provision of in-region, inter-LATA
information services contained in Sections 272(b), (c), (d) and (g),
of the Communications Act.
Respectfully submitted,
COMMERCIAL INTERNET INFORMATION TECHNOLOGY
EXCHANGE ASSOCIATION ASSOCIATION OF AMERICA
By: __________________________ By: _______________________
Barbara Dooley Jonathan Jacob Nadler
President Brian J. McHugh
Commercial Internet eXchange Association Squire, Sanders &
Dempsey L.L.P.
1201 Pennsylvania Avenue, N.W.
Ronald L. Plesser P.O. Box 407
E. Ashton Johnston Washington, D.C. 20044
Stuart P. Ingis (202) 626-6838
Tashir J. Lee
Piper Marbury Rudnick & Wolfe LLP Counsel for the
Information
Seventh Floor Technology Association of America
1200 Nineteenth Street, N.W.
Washington, D.C. 20036
(202) 861-3900
Its Attorneys
November 29, 1999
(1) The Commission has held that the Section 272 competitive
safeguards are applicable to BOC provision of both in-region and
out-of-region inter-LATA information services. See Implementation
of the Non-Accounting Safeguards of Sections 271 and 272 of the
Communications Act of 1934, as amended, 11 FCC Rcd 21905,
21945-47 (1996). By this filing, CIX and ITAA seek the continued
application of the Section 272 safeguards only to inter-LATA
information services that the BOCs provide in-region.
(2) The views expressed herein are those of CIX as a trade
association, and are not necessarily the views of each individual
member.
(3) Section 601 of the Act provided that conduct prior to
February 8, 1996 that was restricted by the AT&T Divestiture
Decree (the decree formerly known as the Modification of Final
Judgment or MFJ) would henceforth be restricted by the Act. Because
the AT&T Divestiture Decree prohibited the BOCs from providing
inter-LATA services, including inter-LATA information services,
Section 601 made such conduct a violation of the Communications
Act.
(4) See Implementation of the Non-Accounting Safeguards of
Sections 271 and 272 of the Communications Act of 1934, as
amended, 11 FCC Rcd 21905, 21911 (1996) (“Non-Accounting
Safeguards Order”) (“In enacting Section 272, Congress
recognized that the local exchange market will not be fully
competitive immediately upon its opening.”).
(5) 47 U.S.C. § 272(b).
(6) Id. § 272(c)(2).
(7) Id. § 272(c).
(8) The Act provides that the application of the Section 272
regime to BOC-provided inter-LATA telecommunications services and
inter-LATA information services sunsets three years after the date
on which a BOC is authorized to offer inter-LATA telecommunications
services, and four years after the date of enactment of the Act,
respectively. 47 U.S.C. §§ 272(f)(1),(2).
(9) The Senate bill that became the basis for the Act would have
made the inter-LATA separate subsidiary requirement permanent, while
giving the Commission the authority to grant exceptions. See
S. 652, 104th Cong., 1st Sess., § 102 (1995). The Senate Committee
Report made clear, however, that “the Senate [did] not intend that
the Commission would grant an exception to the basic separate
subsidiary requirement of this section prior to authorizing the
provision of inter-LATA service … by the Bell Operating Company
seeking the exception to the requirements of this section.” S. Rpt.
104-23, 104th Cong., 1st Sess. at 24 (1995). The Conference
Committee melded features of the Senate and House bills. While
reflecting the House’s deregulatory goals by including a provision
“sunsetting” the inter-LATA safeguards, the 1996 Act also reflects
the Senate’s concern that the pro-competitive safeguards not be
eliminated prematurely by giving the Commission authority to extend
the sunset periods.
(10) See Proposed Model for Preliminary Biennial Audit
Requirements, 12 FCC Rcd 13132 (1997). See also 47 C.F.R.
§ 53.209.
(11) Accounting Safeguards Under the Telecommunications Act of
1996, Report and Order, 11 FCC Rcd 17539, ¶ 203 (1996)
(“Accounting Safeguards Order”).
(12) Non-affiliated ISPs already are at a competitive
disadvantage vis-à-vis ILEC-affiliated ISPs for broadband services
because interconnection among DSL networks is not yet widespread.
Without such interconnection, non-affiliated ISPs are forced to
establish separate trunk connections to the network of each data LEC
in a given region.
(13) Digital Subscriber Line (“DSL”) service is a high speed
(nearly 10 times as fast as 28.8K dial-up Internet service) data
communications service that utilizes the “local loop” and xDSL
modems to provide service to end users. DSL service, which uses
packet-switched networks, can be provided over existing copper lines
that end users currently use for voice telecommunications.
(14) A competitive market for efficient and reasonably priced
transport services (e.g., DSL) is critical to the development of a
competitive high speed Internet services market. Without competitive
services connecting the end-user to the ISP, the BOC-affiliated ISP
stands to dominate the market to the detriment of consumer choice.
The growth of data CLECs since 1996 has, of course, been a positive
development. Unfortunately – as a result of the BOCs’ obstructionist
conduct, the CLECs do not yet have the ability to provide a
ubiquitous, fully effective substitute for the BOCs’ offerings.
(15) See Complaint of Jeff L. Middleton v. Mountain States
Telephone and Telegraph Company, dba U S West Communications, Inc.,
Docket No. 98-049-30, Report and Order (Public Service Commission of
Utah, April 13, 1999).
(16) See Borland, John, “U S West Faces State Government
Fire,” http://news.cnet.com/news/0-1004-200-121617.html (September
20, 1999).
(17) See In the Matter of Policies and Rules Concerning
the Interstate, Interexchange Marketplace, Implementation of Section
254(g) of the Communications Act of 1934, as amended, CC Docket
No. 96-61; 1998 Biennial Regulatory Review – Review of
Customer Premises Equipment and Enhanced Services Unbundling Rules
in the Interexchange, Exchange Access and Local Exchange
Markets, CC Docket No. 98-183, Further Notice of Proposed
Rulemaking, 13 FCC Rcd 21531 (1998), ¶ 2.
(18) Id. at ¶ 1
(19) See
http://www.bell-atl.com/adsl/more_info/pricing_isps.html
(visited November 12, 1999).
(20) See
http://www.bell-atl.com/adsl/more_info/pricing_isps.html (visited
November 12, 1999).
(21) See
http://www.uswest.com/pcat/for_home/product/0,1084,537_1_3,00.html
(visited November 12, 1999) (US West offers a $75 rebate on
activation fees and a free modem); http://www.bell
atl.com/adsl/more_info/pricing.html (visited November 12, 1999)
(Bell Atlantic offers free service connection and a DSL modem for
$99);
http://www.pacbell.com/products/business/fastrak/dsl/pricing.html
(visited November 12, 1999) (Pacific Bell offers free service
activation and free equipment installation).
(22) See
http://services.bellsouth.net/external/adsl/cost.html (visited
November 12, 1999) (BellSouth Complete Choice® consists of
BellSouth’s local telephone service and other optional
features).
(23) Pursuant to Commission orders, a subscriber to a BOC’s
Internet access services must select a non-BOC “Global Service
Provider” to allow the user to access information stored at remote
Websites. See Bell Atlantic’s Offer of Comparably Efficient
Interconnection to Providers of Internet Access Services, 11 FCC Rcd
6919 (1996), Non-Accounting Safeguards of Sections 271 and 272 of
the Communications Act, First Report and Order, 11 FCC
Rcd 21905, ¶¶ 55-57 (1996).
(24) Regulatory and Policy Problems Presented by the
Interdependence of Computer and Communication Services and
Facilities, Tentative Decision, 28 FCC 2d 291, 302 (1970);
Regulatory and Policy Problems Presented by the Interdependence
of Computer and Communication Services and Facilities, Final
Decision, 28 FCC 2d 267 (1971), aff’d in part and rev’d in part
sub nom. GTE Services Corp. v. FCC, 474 F.2d 724 (2d Cir. 1973)
(emphasis added).
(25) Amendment of Section 64.702 of the Commission's Rules and
Regulations (Second Computer Inquiry), 77 FCC 2d 384
(1980) ("Computer II Final Order"), on recon., 84 FCC
2d 50, 53 (1980), further recon., 88 FCC 2d 512 (1981),
aff'd sub nom. Computer & Communications Indus. Ass’n. v.
FCC, 693 F.2d 198, 205 n.18 (D.C. Cir. 1982), cert.
denied, 461 U.S. 938 (1983).
(26) Computer II Final Order, 77 FCC 2d at 463-64.
(27) Policy and Rules Concerning the Furnishing of Customer
Premises Equipment, Enhanced Services and Cellular Communications
Services by the Bell Operating Companies, 95 FCC 2d 1117,
1125-39 (1983).
(28) Application of Ameritech Corp., Transferor, and SBC
Communications, Inc., Transferee, for Consent to Transfer Control of
Corporations Holding Commission Licenses, Memorandum Opinion and
Order, FCC 99-279, CC Docket No. 98-141 (rel. Oct. 8, 1999),
Appendix C, p. 5.
(29) Id. at ¶ 363.
(30) The Commission has, on several occasions, relied on modified
forms of structural separation in order to prevent carriers from
leveraging their power in one market to harm competition in another
market. For example, in the Competitive Carrier proceeding,
the Commission adopted a form of structural separation to guard
against "cost-shifting and anti-competitive conduct" by
interexchange carriers affiliated with independent local exchange
carriers ("LECs"). See Policy and Rules Concerning Rates for
Competitive Common Carrier Services and Facilities Authorization
Therefor, 98 FCC 2d 1191, 1198 (1984). The Commission subsequently
extended this regime to all independent incumbent LECs providing
in-region, interstate interexchange and international services.
See Regulatory Treatment of LEC Provision of Interexchange
Services Originating in the LECs’ Local Exchange Area and Policy and
Rules Concerning the Interstate Interexchange Marketplace, FCC
97-142, CC Docket Nos. 96-149, 96-61, ¶¶ 156-69 (rel. Apr. 17,
1997). Structural separation, the Commission explained, was
necessary to prevent independent LECs from using their control over
bottleneck facilities to discriminate, misallocate costs, or engage
in a price squeeze. In the commercial mobile radio services (“CMRS”)
arena, the Commission has imposed structural separation requirements
on all incumbent LECs that provide in-region CMRS in order to guard
against discriminatory interconnection practices. See Amendment
of the Commission's Rules to Establish Competitive Safeguards for
Local Exchange Carrier Provision of Commercial Mobile Radio
Services, 12 FCC Rcd 15668, 15692-96 (1997). And, for the same
reasons that the Commission imposed structural separation in the
interexchange and wireless areas – to prevent discrimination, cost
misallocation, and the possibility of a price squeeze – the
Commission requires U.S. carriers that are affiliated with dominant
foreign carriers to comply with a form of structural separation.
See Rules and Policies on Foreign Participation in the U.S.
Telecommunications Market, 12 FCC Rcd 23891, 24003-12
(1997).
(31) See Amendment of Section 64.702 of the Commission’s Rules
and Regulations (Third Computer Inquiry), 104 FCC 2d 958
(1986) (subsequent history omitted).
(32) California v. FCC, 905 F.2d 1217 (9th Cir. 1990)
(“California I”).
(33) See id. at 1232-33.
(34) See id. at 1233-37.
(35) Id. at 1237-38 (footnote omitted).
(36) California v. FCC, 39 F.3d 919 (9th Cir. 1994)
(“California III”).
(37) See, e.g., Comments of the Information Technology
Association of America, CC Docket Nos. 95-20, 98-10 (filed Mar. 27,
1998).
(38) The Commission has held that “to the extent that the effect
of California III might be regarded as returning regulation
of BOC enhanced services to the Computer II framework . . .
we grant any necessary waivers, pending the completion of the remand
proceedings, so that BOCs” can provide information services on an
integrated basis.” Bell Operating Companies Joint Petition for
Waiver of Computer II Rules, 10 FCC Rcd 1724, 1730 (1995).
Nearly five years later, these waivers remain in effect.
(39) See Computer III Further Remand Proceedings: Bell
Operating Company Provision of Enhanced Services; 1998 Biennial
Review of Computer II and ONA Safeguard Requirements, 14 FCC Rcd
4289, 4295 (1999).
(40) See Computer III Further Remand Proceedings: Bell
Company Provision of Enhanced Services, Notice of Proposed
Rulemaking, 10 FCC Rcd 8360, 8362 & n.5 (1995).
(41) See Separation of Costs of Regulated Telephone Service
from Costs of Nonregulated Activities, Report and Order, 2 FCC
Rcd 1298 (1987), on recon., 2 FCC Rcd 6283 (1987), on
further recon., 3 FCC Rcd 6701 (1988).
(42) Because the BOCs lack market power outside of their service
regions, CIX and ITAA do not believe it is necessary for the
Commission to continue to apply the Section 271 regime to BOC
provision of out-of-region inter-LATA information services.
(43) Should the Commission determine that a rulemaking proceeding
is necessary, however, it should extend the sunset of Section
272(f)(2) until such time as the proceeding has been completed.
(44) 47 U.S.C. § 272(f)(3).
