April 27, 1998
"Section 706: An Opportunity for Broadband Competition Policy"
Good morning, and thank you for inviting me to join you here today. Although I really like my new job in Washington, I have to say I love getting back to the West. And I'm delighted to have a chance to catch up with my fellow ROC commissioners. It was a great privilege to have worked with so many of you in my previous life as a state commissioner, and I very much hope to continue those good working relationships in my new capacity.
One of the themes of this conference is where telecommunications is going in the next 26 months. When I think of the future of telecommunications, the first thing I think about is the Internet. I am tremendously enthusiastic about the advances that are being made practically every day in the world where computers meet telecommunications. I am convinced that the Internet will eventually affect our everyday lives in profound ways. As a telecommunications regulator, my job is to do whatever I can to make that future arrive as soon as possible.
There are a few proceedings at the FCC that have the potential to affect the development of Internet access over the next few months. One is the section 706 proceeding. Section 706 of the Act directs the FCC to initiate a proceeding by August of this year concerning the availability of advanced telecommunications. If we find that those services are not being widely deployed, the Act directs us to take immediate action to remove barriers to infrastructure investment. This proceeding will be very important in making sure all Americans, particularly those located in the 14 state U S WEST region, receive the benefits of the information revolution.
Even before we could initiate that proceeding, however, several Bell Companies, including U S WEST, have asked the FCC to use its section 706 authority to forbear from applying section 271 with respect to data networks. U S WEST and the other BOCs argue that granting that relief would be good for consumers. They contend that allowing BOCs into the interLATA data market would result in greater bandwidth in both the local loop and in backbone networks.
Some people would dismiss those 706 applications out of hand. Those people say the applications are automatically flawed because voice can be transmitted over data networks, so allowing BOCs to provide interLATA data service effectively allows them to provide interLATA long distance service, which Congress clearly did not intend in the 1996 Act. Others say directly forbearing from section 271 would violate the Telecom Act, which speaks specifically on forbearance from sections 251 and 271.
Clearly we must be vigilant that any actions taken on those petitions do not undermine Congress's clear and unmistakable intent regarding BOC provision of long distance service. But fidelity to that intent should not mean cursory dismissal of the 706 applications. As I mentioned, I believe the 706 petitions tee up important questions that we should grapple with. It is possible that we will conclude that the statute prohibits us from granting BOCs' 706 petitions. If that's the case, I would still favor addressing many of the issues I'm about to discuss in some other proceeding.
The goal of section 706 is to make sure regulators are facilitating the deployment of advanced telecommunications capability to all Americans. U S WEST argues that the FCC has authority under section 706 to forbear from applying section 271 to data networks. The result, says U S WEST, would be rapid deployment of data networks around its region. Right now, U S WEST argues that it cannot build efficient high speed networks because the restriction on interLATA transmission unreasonably increases the costs of backhauling data.
I don't know whether the backbone component of the data market is sufficient today. I expect the record on the 706 petitions will illuminate this question.
What I don't need a record to tell me is that loop bandwidth is woefully inadequate. For new entrants, there is a need for setting clearer rules regarding the use of unbundled local loops. Increased computing power is being attached to the telephone network every day. Fiber optics and high speed electronics are exponentially increasing the volume of traffic that can be carried on data backbones. But in between the backbone and the increasingly powerful PCs lies the trusty local loop -- the on ramp to the Internet for most American.
That may change over time. Fixed wireless technology may someday provide a cost effective and reliable loop substitute. And cable lines are being upgraded to permit telecommunications and Internet access. But right now, incumbent local telcos are the on-ramp to the Internet. So I think the FCC needs to focus on what policies will maximize use of local loops by incumbents and their competitors alike.
The previous Commission did a great job of local loop unbundling and setting up collocation requirements. Those rules have enabled competitors to obtain access to unbundled loops by collocating equipment that delivered unbundled loops to the competitors switch.
But having already mandated loop unbundling and collocation, we should not assume our job is done. Competitors that want to provide high bandwidth services may be unreasonably constrained by our current rules. For instance, our collocation rules may be an entry barrier to this generation of competitors. Under the FCC's current rules, incumbent LECs are able to insist upon major renovation and cage construction that can easily run to over 100 thousand dollars per central office. If a CLEC needs to blanket the city with its competitive offering, a competitor could be required to spend millions of dollars to collocate facilities in a single city. There are legitimate arguments being made by competitors that some of the collocation requirements imposed by incumbent telcos are unnecessary and serve only to raise competitors' costs. If true, this would be unacceptable.
One possibility I think the FCC should explore is "cageless collocation." This would allow competitors to place their equipment in telco central offices, as they do today, but with less cumbersome security mechanisms, such as card-entry systems and video surveillance. This has the potential to reduce market entry costs and to speed the initiation of service. What we need to do is take a hard look at our collocation rules and see if they strike the right balance among the relevant factors -- promoting competition, making efficient use of LEC central office space, and securing equipment. One new entrant has said that more efficient collocation procedures could determine whether smaller towns ever see the benefits of facilities-based competition.
I also think this FCC has a great opportunity to build on the previous Commission's work in the area of loop unbundling. We should try to improve conditions for robust competition in the high speed access market. Such a proceeding would require the Commission to address technical issues regarding access to unbundled loops for high bandwidth service. Section 706 may be the vehicle for addressing those issues.
The reason you get into some loop unbundling issues in 706 is because access to advanced services still begins with the local loop. And if competitors lack non-discriminatory access to the loop, consumers will not see the benefits of a true bandwidth free-for-all that they are clearly asking for. Providing incentives for increasing backbone bandwidth will not solve loop capacity problems.
Let me mention just a couple of the loop unbundling issues that the FCC could address to improve market conditions for high bandwidth competition. One issue is whether the FCC should establish rules of engagement for use of unbundled loops by competitors. Right now, incumbent LECs manage the inventory of local loops for themselves. This management includes tracking the type of loop facilities serving particular customers. Some loops are more conducive to high speed services than others. Loops with multiple splice points, and loops with range-extending equipment have problems transmitting high-speed digital signals. Incumbent telcos also know which loops with these characteristics can be modified to permit high bandwidth service.
Incumbent telcos also track the particular bandwidth services being transmitted over loops in the same bundle. Telcos need to manage the power of the loops inside a particular bundle. If too many loops in a bundle are transmitting high bit rate services, the signals can bleed into each other and deteriorate service. This may be an area where rules of priority might be helpful.
The FCC should try to make sure that these types of loop management issues do not become entry barriers for competitors. In general, there's no question that the more a competitor relies on the incumbent, the more opportunity there is for anticompetitive behavior by the incumbent. Loop management strikes me as an area where competitors will be fairly reliant on the incumbent. Thus I think the FCC should evaluate whether some sort of guidance may be helpful in this area.
But it's also clear that Congress intended for the FCC and the states to take actions that will bring advanced services to all Americans. Section 706 shows that Congress intended for state commissions to join the FCC in promoting access to advanced telecommunications. It was wise for Congress to encourage state involvement because your actions can have a major impact on the rollout of advanced services throughout your states. For example, you set the rates for unbundled loops. That is a critical factor for competitors who are deciding whether to offer high speed access to the Internet in your state. So I would reiterate what Congress has already asked you to do, which is to use your authority to create conditions that encourage the deployment of high bandwidth services.
There was a hearing last week in the Senate Commerce Committee on section 706. One interesting idea at that hearing was offered by Senator Ron Wyden, who suggested that any grant of a section 706 application be conditioned on the BOC's commitment to build out its data network throughout its region. Data communications, even more than voice, tends to be concentrated in and among densely populated areas. So Senator Wyden's suggestion would seem to dovetail with the purpose of section 706, which is for the FCC and the states to take action to encourage deployment of advanced capabilities to all Americans.
Most of what I've said up to now deals with what can be done to promote competition in the high bandwidth market. But promoting competition is not just about finding out what should we do for new entrants. It's also about what incumbents need to get out there and compete on a level playing field. For example, Bell Atlantic's 706 petition requests that the Commission declare that the DSL equipment attached to loops is not available to competitors as an unbundled network element.
While I firmly believe we need to enforce loop unbundling rules rigorously, Bell Atlantic has a point worth discussing. In my view Congress wisely intended to give competitors a right to lease pieceparts from the incumbent to provide competing service. But I believe Congress did so with an awareness that unbundling rights have limits. I say that because section 251 gives the Commission discretion in deciding what elements must be unbundled. In the rush to unbundle networks, I believe we need to carefully consider the effect of unbundling on the incumbent's incentives to innovate and deploy new technologies. States are also entitled to order unbundling beyond what the FCC ordered. As you encounter those issues, I would encourage you to strike a balance between facilitating market entry for CLECs and preserving innovation incentives for ILECs.
As I mentioned earlier, I am not arguing that all these issues must be addressed in the a section 706 proceeding. The section 706 petitions raise interesting and important points that may be more appropriately addressed in other proceedings. But since they're teed up as 706 issues, let's see if that's where they are best addressed.
My final point is that while section 706 directs regulators to facilitate advanced services deployment, it's ultimately about encouraging carriers to deploy those services in high cost areas where they otherwise might not be deployed. Come to think of it, that's the way they used to talk about basic phone service. Back then, we as a nation simply decided that local phone service was important enough that geography and income level shouldn't be barriers to receiving service. So we pitched in together and made sure all Americans had a reasonable opportunity to get telephone service.
We may face the same type of question in our 706 proceeding with respect to Internet access. I suspect that most commissioners in this room are from states where some citizens can't get Internet access through a basic local call, but instead have to make a toll call. Maybe as a result of our actions in the upcoming 706 proceeding, there will be a consensus that Internet access is too important not to be affordable and widely available. That policy debate will involve issues of great significance to me -- how to encourage the Internet's growth, and access by all Americans to communications technology. I look forward to that proceeding, and hope very much you will bring your unique viewpoint to that discussion.
Once again, it is a pleasure to be with you this morning, and thank you for inviting me to join you.