Before the

National Telecommunications and Information Administration

 

 

 

 

In the Matter of

 

 

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

 

 

 

 

Dated:            December 19, 2001

           

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

 

 

Dated: December 19, 2001