Before the
DEPARTMENT OF COMMERCE
National Telecommunications and Information Administration
)
Deployment of Broadband Networks ) Docket 011109273-1273-01
and Advanced Telecommunications
)
)
COMMENTS OF MPOWER COMMUNICATIONS
CORP.
IN RESPONSE TO REQUEST FOR
COMMENTS
ON DEPLOYMENT OF BROADBAND NETWORKS
MPOWER COMMUNICATIONS CORP.
Russell I. Zuckerman
Senior Vice President & General Counsel
Francis D. R. Coleman
Vice President, Regulatory Affairs
Richard E. Heatter
Vice President, Legal Affairs
Marilyn H. Ash
Counsel – Legal & Regulatory Affairs
175 Sully’s Trail – Suite 300
Pittsford, NY 14534
(716) 218-6568 (tel)
(716) 218-0635 (fax)
Table of Contents
Summary…………………………………………………………3
a. Technological Picture………………………………………..4
b. The Need to Share Network Should Not be an Obstacle to Deployment of New Network……………………………………………...6
II. Competitive Requirements……………………………………….7
III. From Mandate to Marketplace/We Need a Way Forward……….8
a. We Need to Think Big……………………………………… 8
i) Residential Rate Re-Balancing…………………...9
ii) Universal Service………………………………...10
b. Industry Leadership
Needed…………………………………………11
c. Models Exist for Making a Transition to Competition………12
d. Priorities……………………………………………………...13
e. Proposed Process…………………………………………….15
IV. Conclusions………………………………………………………16
Summary
As communications companies increasingly construct fiber and other very high capacity “pipes” to carry broadband traffic, i) the new technology is changing the way all traffic is transmitted, including voice and ii) as these high capacity wires are laid to individual end-users, it becomes increasingly uneconomic to lay competing facilities. Thus, the “last mile” of facilities must be shared, regardless of whether the facilities are owned by ILECs or cable companies.
Despite the economic necessity of sharing the distribution network, however, wholesale issues, including pricing, are not the most significant obstacles to developing a competitive marketplace for telecommunications. More significant are major segments of uneconomic pricing, specifically: a) subsidized residential rates and b) universal service funding for inefficient and/or high cost areas.
These gaping holes in competitive pricing mechanisms send incorrect signals to Wall Street and the marketplace and as a result, severely limit the ability of competing companies to serve residential and high cost areas, thus, largely denying these segments of the community the benefits of new, competitive products and services.
Nevertheless, ILECs and CLECs continue to haggle over wholesale issues. No segment of the industry has provided the needed leadership to cooperatively derive solutions that will allow the industry to make a transition to a more competitive environment. Mpower believes it is time for the industry to establish a process for evaluating and proposing ways to move in a constructive, professional manner toward competition.
Before the
DEPARTMENT OF COMMERCE
National Telecommunications and Information Administration
)
Deployment of Broadband Networks ) Docket 011109273-1273-01
and Advanced Telecommunications
)
)
COMMENTS OF MPOWER COMMUNICATIONS
CORP.
IN RESPONSE TO REQUEST FOR
COMMENTS
ON DEPLOYMENT OF BROADBAND NETWORKS
Mpower Communications Corp. ("Mpower"), a competitive provider of broadband and telephony services to business and residential customers, hereby submits its Comments on the issues raised by the National Telecommunications and Information Administration (“NTIA”) in its Notice, Request for Comments on Deployment of Broadband Networks and Advanced Telecommunications.
As technology has developed, fiber “pipes”
increasingly carry the world’s telecommunications signals. Fiber is currently the medium of choice because of its
capacity and because of its performance characteristics. Other media such as wireless – whether terrestrial or satellite –
are still in a developmental phase by comparison. With wireless, for example, there are
still cost issues, transmission delay problems and spectrum
constraints.
These
fFiber “pipes,” however, are well developed and are capable of enormous
capacity. One strand of this fiber can provide more capacity than
most end-users will ever need.
Consequently, it is generally uneconomic to duplicate the “last mile” to
end-users – somewhat like constructing parallel highways. It is very expensive and does not
achieve significant
incremental value very much.
It is also important to be aware that increasingly voice and data use the same or very similar technology. As a result, in the future it will not be very useful to distinguish between voice and data and it will not be possible to treat broadband and traditional network architectures differently. These facts mean that broadband as well as traditional networks must be shared to achieve economic efficiency. For competitive companies such as Mpower, which has its own switches but buys or leases transport capacity and loops, this means there must be “end-to-end” unbundled network elements (“UNEs”) regardless of technology in the network or equipment on the loop. If there are technological or other barriers to using “the last mile” of network -- whether copper, fiber or other technology -- it will become impossible to reach our customers. Many competitive local exchange carriers (“CLECs”) are in a similar position. Consequently, without “end-to-end” UNEs, i.e. the ability to reach customers regardless of where they are in the telecommunications network, the goal of widespread competition can never be achieved.
Thus, failure to share networks effectively is a significant obstacle to competition. Also, an unwillingness to share networks can be an obstacle to the deployment of new technology. This need not be the case, however. Some companies have undertaken massive network restructuring, e.g. SBC’s Project Pronto, and have offered to share at what are said to be TELRIC (total element long run incremental cost) rates. Without such sharing, however, the end result will certainly be re-constituted monopolies.
b.
The Need to Share Network Should Not be an Obstacle to Deployment of
New Network
Despite
the fact that Although it is economically necessary to share
networks, there are mutual benefits to doing so. The incumbent local exchange carriers
(“ILECs”) from whom most network elements are leased receive numerous benefits
from being able to “sell” capacity on their networks. First, they get paid and as will be
discussed below, they get paid at rates which are economically appropriate. Second, selling a portion of their
network capacity helps to “fill the pipes” and such wholesale business can
become a significant source of revenue for ILECs. Third, such wholesale business helps to
pay for new investment. Fourth,
since investment in fiber purchases enormous capacity, the use by CLECs of some
of this capacity is efficient because it makes greater use of the investment at
an earlier date.
Although complaints are frequently heard about forward-looking cost models and TELRIC in particular, any weaknesses these models have are not reflected in the area of new investments such as fiber. Almost by definition, the costs of new investments are covered by forward-looking cost models. Since fiber investment is a forward-looking or future oriented investment, its costs are among those most likely to be covered effectively. Further, current statutory definitions provide for the inclusion of a fair profit.
High on the list of specific complaints about forward-looking cost models is that they do not cover all of the past, embedded costs. They should not cover such costs. Monopoly ratepayers have long been covering these costs and duplicate cost recovery is not appropriate.
It seems clear, however, that the main reason ILECs complain about forward-looking or TELRIC-based rates is not because TELRIC does not cover costs appropriately. It is because as competition begins to emerge, the ILECs’ most lucrative customers are likely to be sought and won first. This lessens revenues from customers who traditionally have subsidized other, uneconomic ILEC rates. Most glaring are residential rates, which typically have been subsidized by large and middle-sized business rates. For the most part, residential rates have not been “re-balanced” and do not pay their way. The answer is to raise residential rates to cover costs.
Further, it is necessary to undertake this effort before additional “tinkering” with the wholesale rules affecting competition. More “band aids” are relatively ineffective in the face of such major structural flaws. In fact, some ILECs would likely admit that while subsidized residential rates hurt ILEC revenues, they can usually make some profit by selling features and other “add-on” services. CLECs, on the other hand, are typically kept out of the residential market entirely because they cannot compete with the subsidized residential rates.
At a high level of generality, competitive carriers have only a few basic requirements for ILEC networks. First, they need open access to incumbent networks. Second, and implied by the first requirement, they need technologically neutral interfaces to the ILEC network so that they can use equipment which suits their own goals and business plans. Third, they need an adequate means of traversing DLCs (Digital Loop Carriers), which make up an increasing proportion of the ILEC network architecture. If the increasingly numerous DLCs in ILEC networks are not constructed to allow for ready sharing, this can become an overwhelming problem for competition. Fourth, they need to have access to copper in the short run and as a transition mechanism. In order to compete, competitors must have up-to-date technology. Ultimately, they cannot compete against new technology with old technology. If, however, they have begun by using technology suitable to copper, e.g. DSL (digital subscriber loop), they need access to copper for the period of time such copper-based products are viable and for the period of time that it takes the CLEC to make a transition to the use of newer technologies. These periods of time, of course, will likely overlap.
Consistent with these principles, it also makes sense to require open access to cable networks. Since one strand of fiber, or co-axial cable, provides more than adequate capacity for most end-users, it mostly does not make sense to replicate the “last mile,” regardless of whether the “last mile” is served with fiber or co-axial cable. Whoever controls the “last mile” with high capacity facilities likely has a monopoly or duopoly and should share facilities at appropriate wholesale rates.
III. From Mandate to
Marketplace/ We Need a Way Forward
a. We Need to Think Big.
The NTIA has focused its request for comments on broadband, per se. This is a big topic and one might think it was more than enough with which to grapple. Because broadband is changing the technology of the whole industry, however, along with the resulting economic environment, one cannot consider broadband in a vacuum. It is essential to look at all the major pieces of the puzzle.
In addition,
the Telecommunications
Act of 1996 gave the industryhas been given
a mandate to make a transition to a competitive marketplace. The “rules” are different in competitive
as opposed to monopoly marketplaces.
Thus, again, it is essential to take a comprehensive look at they way an industry functions in order to
make an appropriate analysis regarding the role of broadband in a new, more
competitive marketplace. Two other
“pieces” it is essential to include in the analysis are i) Residential Rate
Re-Balancing and ii) Universal Service.
i)
Residential Rate
Re-Balancing
Residential rates are typically subsidized. Historically, these rates have been supported by monopoly profits from large and medium-sized businesses, Yellow Pages, etc. As competition develops, the very first targets of CLECs – and their predecessors – were the largest, most independent and most lucrative businesses. These are the businesses to which it makes sense to build new facilities. These are the businesses most able to capitalize on more economic rates by virtue of their size and buying-power. These are the most profitable businesses to ILEC and CLEC alike and they are frequently the “first to go.” This reduces revenues to the ILEC for support of the residential subsidies. The losses, however, are due primarily to the uneconomic rates. When rates are skewed for both residential users (down) and business users (up), incorrect price signals are sent to the marketplace regarding investment and services for both. Large businesses become particular targets for competitors and residential customers are left with few, if any, new options. Such subsidies clearly cannot continue in a competitive marketplace.
It is obvious
that such subsidies are not good for ILECs. They also are not good for CLECs because
CLECs cannot compete effectively against subsidized rates. They are not even good for residential
customers because although they may have slightly lower basic rates, it is not
economic to compete for their business and they “miss out” on the benefits of
competition.
Residential rates need to rise where they do not cover costs. Only when residential rates cover costs,
plus a profit, will new, competitive carriers be encouraged rewarded
for
to entering the residential marketplace to
develop and popularize new products and services. Some products and services such as DSL
are not new but were not made available earlier because they did not
serve the interests of incumbent, monopoly companies. Perhaps ILECs feared they would undercut high margin
business products such as T-1’s that helped to subsidize residential rates. In any event, it was only after
competitive companies began offering DSL on a UNE (shared network) basis that
ILECs began to make DSL available to their own customers.such A competitive environment requires
correct residential price signals from residential prices which cover
costs. Residential rates seldom
meet this requirement.
ii) Universal Service
Universal service is another legacy practice which leads to incorrect price signals being given. Universal service payments subsidize inefficient and/or high cost regimes. While lower density service territories typically face higher costs per customer, if the benefits of competition are to emerge, price signals need to be more realistic regardless of the location of the service.
There is every indication that wireless and/or satellite technology can be more efficient than wireline technology for low density areas. For sufficient incentives to exist for wireless carriers to bring the much sought after broadband technology to these areas, however, universal service payments must be confined to hardship or “lifeline” situations. Given average telecommunications bills across the country today, in most instances, a rise in prices should be manageable for most consumers.
Indeed, it appears that many have already replaced limited and/or low quality landline service with more flexible wireless services despite the expense. Further, many small, rural ILECs have already begun to offer multiple types of technology. Others would likely do the same with a combination of much reduced universal service funding and the encouragement of appropriate pricing.
b. Industry Leadership Needed
Current
rules uUltimately require
governmental entities will need to approve to deal with
residential rate re-balancing and universal service fund
reform. In general, however,
government should be as little involved in the transition to competition as
possible. The industry is most
knowledgeable about the issues and alternatives it faces. Traditionally, when significant issues
have arisen in the states, industry representatives have gathered in workshops
and even more informal groups, with or without commission Staff, to discuss and
develop proposed rules and procedures for moving forward more efficiently. Even in these turbulent times, this has
occurred in limited areas, such as performance measures. For the most part, however, the parties
have turned to government for solutions to day-to-day issues and problems, e.g.
Tauzin bill, “hi cap” petition, TELRIC/UNE remand appeals, etc.
Where is the needed industry leadership? Who is advancing the discussion and development of industry-wide solutions? Where are the industry-wide forums? In the crucial area of progress toward competition on a nationwide scale, we seem to be operating in a vacuum when it comes to industry cooperation. Certainly there are many areas where cooperation would benefit the process and the players. It seems past time to get serious about the destiny of our industry.
c.
Models Exist for Making a Transition to Competition
There are a number of models, processes and procedures for moving from monopoly to competition. At the retail level, some states already have mostly de-regulated small, municipal telecommunications companies. If they want to raise rates, they put a notice and survey in with the bill. If a predetermined percentage of customers object, then the utility is subject to a rate case. Otherwise, the ILEC can raise its rates without one.
At the
wholesale level, Mpower has proposed another transition mechanism, which it
calls FLEX Contracts.[1] Basically, it has proposed that ILECs be
encouraged to develop or negotiate wholesale local service contracts similar to
long distance and wireless “package deals,” to include terms desired by CLECs
and ILECs regarding such issues as the price, quantity,
quality, term and types of services to be provided. These contracts would be facilitated by
making them available for opt-in, as is, but not subject to “pick and
choose.” They would also be subject
to complaint actions and federal enforcement should they be deemed to
discriminate against
opt-in by carriers not a party to the agreement or not be in the public
interest.
The law provides for use of the “impair test,” little by little over time and it might be possible to negotiate some other, more defined process which is gradual and predictable, for example, sunset rules, perhaps by different markets and products over time but making exceptions for the distribution network of loops, i.e. the “last mile.”
d. Priorities
As discussed above, it is of critical importance to take a holistic approach to the telecommunications system when analyzing how to achieve competition. The worst possible approach at this juncture is to prematurely “de-regulate” broadband. “Broadband,” by whatever definition, refers to the newer high capacity portions of the telecommunications network, which increasingly carry not only data “packets” but voice “packets” as well. Services provided under the broadband umbrella represent the cutting edge of innovation and development in the field. Because this is the area where ILECs are being challenged most successfully, they continue to clamor for a completely free rein while they are still the dominant players and may most easily crush the struggling competitive companies. Quite notably their voices have not been raised to ask for reforms to segments of the current system where ILEC monopolies are virtually unchallenged and which continue to operate in the traditional, anti-competitive manner, i.e. residential subsidies and universal service.
Mpower strongly believes that residential rate subsidies must be dealt
with promptly. Certainly they
should be dealt with before any further changes to the
de-regulation of
broadband. This is particularly
true if consumer advocates are correct in positing that incumbent, “monopolist”
control over both broadband facilities and content will slow rather than
accelerate deployment of broadband.
Universal service also impairs competition to a
significant segment of the population.
This segment is much smaller than that affected by residential rate
subsidies, however, so dealing with these issues could have a somewhat lower
priority.
The telecommunications services industry is not a zero sum game, however. New companies, new products and new
investment can and do create new markets and new revenues. Thus it is especially important to get
investment in technology and facilities flowing. Generally, this investment is facilitated by
minimizing regulation and the “artificial space” created by regulation,
e.g. subsidized
residential rates and universal service subsidies. As desirable as it may be to achieve at
least partial replication of existing networks, however, this will not occur with
private funds without the expectation of a reasonable return. The original networks were deployed by
monopolies and paid for by all ratepayers and they must be shared as long as economically and
competitively necessary.
For the foreseeable future, therefore,however, it
seems clear that access to the “last mile” must be protected for competition to
exist.[2] In addition, a “lifeline” program for
the truly needy must continue, even after universal service subsidies have been
eliminated. Most other aspects of
the current system presumably should be or will be subject to transition over
time as competition increases.
Educated guesses suggest that switching and UNE-P may be the first
formerly monopoly facilities to meet the “necessary and impair” standard. Mpower would agree.
Other facilities will likely be declared competitive over time, perhaps on a market basis as with the limitations on current switching requirements. A well-defined process would be helpful, however, and it would be preferable if this process could be agreed upon among the parties. Mpower believes that the transition process must have as one of its principles not just an end product but regulatory predictability and avoidance of regulatory shock. In this way new investment and new technology can be encouraged and all end-users can benefit, business and residential alike.
e. Proposed Process
Mpower believes it would be valuable to the entire industry if a cooperative process could be established for evaluating and proposing ways to move in a constructive, professional manner toward competition. Proposals should be solicited from all segments of the industry and the regulatory community, that is, CLECs, large ILECs, smaller and rural ILECs, industry associations, state organizations, consultants and research organizations. A nationwide and/or industry-wide organization, such as the U.S. Telecom Association, might then hold an industry-wide conference on how to make a transition to a more competitive, less regulated environment.
As noted above, this analysis must take a broad view of the current features of the telecommunications environment, including all major elements, such as residential rates and universal service, as well as the UNE environment. There must be no “sacred cows.” Proposals must have broad scope and also come to grips with practical realities.
Based upon the proposals made and the direction of the conference, a committee could draft a “white paper” outlining a cautious, phased de-regulation mechanism for further industry review, comment and shaping. Ultimately, an industry-sponsored petition could be presented to the Federal Communications Commission (“FCC”), with alternative proposals for various aspects of the process, where necessary or desirable.
IV. Conclusions
To properly evaluate the role and impact of broadband in today’s telecommunications environment, it is crucial to put the issues into a broader technological, economic and regulatory perspective. Such a perspective must take account of the fact that broadband is fundamentally changing the way telecommunications services are delivered and must include evaluations of residential rate re-balancing and universal service.
The new fiber and co-axial cable networks provide enormous capacity and make it uneconomic to duplicate some network architecture, especially the “last mile.” Therefore, networks must be shared in useful ways and at appropriate prices -- telecommunications and cable networks alike.
It should be possible to cooperatively develop a set of processes and procedures for the gradual, planned transition to competition, except for the distribution network, i.e. the “last mile,’ and industry leadership is urgently needed to achieve these goals.
Respectfully submitted,
By
Russell I. Zuckerman
Senior Vice President
& General Counsel
Francis D. R. Coleman
Vice President, Regulatory Affairs
Richard E. Heatter
Vice President, Legal Affairs
Marilyn H. Ash
Counsel – Legal & Regulatory Affairs
175 Sully’s Trail – Suite 300
Pittsford, NY 14534
(716) 218-6568 (tel)
(716) 218-0635 (fax)
[1] In the Matter of Petition of Mpower Communications Corp. for Establishment of New Flex Contract Mechanism Not Subject to “Pick and Choose,” CC Docket No. 01-117, filed 5/25/01.
[2] Even Alfred E. Kahn, who has consistently opposed the position stated here on broadband, recently commented that the one exception to the de-regulation he espouses is “truly essential monopoly facilities.” “Unleash the Broadband Economy,” Wall Street Journal, 12/13/01. “Last mile” facilities clearly will continue to fall into this category for a long time to come. Presently, numerous other parts of the telecommunications network also meet these criteria.