FOCAL COMMENTS IN NTIA PROCEEDING

Before the

NATIONAL TELECOMMUNICATIONS AND INFORMATION ADMINISTRATION

Department of Commerce

Washington, DC 20230

Deployment of Broadband Networks ) Docket No. 011109273-1273-01

and Advanced Telecommunications ) RIN 0660-XX13

COMMENTS OF FOCAL COMMUNICATIONS CORPORATION,

AND PAC-WEST TELECOMM, INC.

Focal Communications Corporation, and Pac-West Telecomm, Inc. (collectively “Commenters”), by their undersigned attorneys, hereby provide their responses to the questions set forth in the notice dated November 14, 2001 in the above-captioned proceeding.

Focal Communications Corporation (“Focal”) is a competitive local exchange carrier (“CLEC”) headquartered in Chicago, Illinois. Focal provides facilities-based local exchange service in selected markets in California, Florida, Georgia, Illinois, Massachusetts, Michigan, New York, Ohio, Pennsylvania, Texas, and Washington, DC. Pac-West Telecomm, Inc. (“Pac-West”) is a CLEC headquartered in Stockton, California. Pac-West provides facilities-based local exchange service in selected markets in Arizona, California, Colorado, Nevada, Utah, and Washington.

RESPONSES TO QUESTIONS

A. What should be the primary policy considerations in formulating broadband policy for the country? Please discuss the relative importance of the following: access for all; facilities-based competition; minimal regulation; technological neutrality; intra-modal competition; inter-modal competition; and any other policy consideration.

The primary policy consideration for formulating a broadband policy for the country should be the development of a regulatory framework that will promote and sustain competition in the provision of broadband services to businesses and consumers. As stressed by Commenters in response to these questions, a regulatory framework that promotes and sustains competition is most likely to assure that consumers and businesses have access to broadband services at affordable rates by permitting multiple providers to respond to market demand for broadband services.

Moreover, a competitive marketplace for provision of broadband services is the best way to achieve the other goals identified in this question. For example, as stated, access to broadband services for the greatest number of consumers and businesses is most likely to be achieved if numerous providers are able to compete on the basis of price and other factors. Local service providers operating in a fully competitive market will also lead to the most efficient allocation of resources, thus promoting facilities-based competition. Competition will also best achieve the goal of minimum regulation because in a competitive market, competition, rather than regulation, can adequately discipline any unreasonable behavior by service providers. The efficient allocation of resources that would be achieved in a competitive market would also largely determine the choice of technology used to provide broadband services. Hence, development of robust competition would be technology-neutral. Inter-modal and intra-modal competition would also be best achieved by a fully competitive broadband marketplace.

However, a regulatory framework that will promote and sustain broadband competition must be founded for the foreseeable future on a recognition that incumbent local exchange carriers (“ILECs”) are the dominant providers of local telecommunications services and exercise control over local bottleneck facilities. ILECs will continue to be the dominant providers for the foreseeable future. Thus, a competitive market for local telecommunications services will not be achieved absent continued regulation of ILECs that ensures that ILECs are not able to thwart competition by, for example, denying access to essential facilities, or by overcharging for them.

In this connection, the 1996 Telecommunications Act already provides a foundation for a competitive market for local telecommunications services, including broadband, as Congress intended. The key goal of the 1996 Act was to break the local telephone monopolies and open local markets to competition.[1] To encourage the development of services and facilities that provide broadband access, the government must ensure that the existing pro-competitive regulations are enforced, including access to ILEC essential facilities. This is the best way to assure that all of the policy considerations set forth in this question are addressed in ways that will serve the public interest.

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.

Commenters do not have specific suggestions at this time on the appropriate criteria for defining the capacity of broadband services. Commenters would not object to establishment of a definition of broadband services to the extent necessary to facilitate the FCC’s obligation to promote, through competition, the provision of advanced telecommunications to all Americans.

However, commenters are concerned that this question presupposes that there is a need for a definition of broadband services in order to establish a separate regulatory framework governing broadband services. In fact, except for possible limited exceptions, there is no need for a separate regulatory framework governing broadband services. A thorough-going implementation of the pro-competitive provisions 1996 Act will best achieve the development of a competitive market for local broadband services.[2] Because it would be inappropriate to place “broadband” services even partially outside the scope of the deregulatory, pro-competitive regulatory framework of the 1996 Act for all the reasons stated herein, policy-makers should not manipulate any definition of broadband to achieve inappropriate objectives such as the premature deregulation of ILEC provision of telecommunications services otherwise subject to the 1996 Act.

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?

Commenters do not have specific information in response to this question concerning supply and demand. However, Commenters refer NTIA to the FCC’s reports on high-speed services for Internet access and broadband deployment, available at http://www.fcc.gov/Bureaus/Common_Carrier/ Reports/FCC-State_Link/comp.html. Commenters also refer NTIA to the following analyst comments explaining that the failure of DSL providers is in part attributable to poor ILEC provisioning:

The North American ADSL market has been scarred, tarred and feathered. Leading Independent DSL service providers in the North America (Northpoint, Rhythms NetConnections, and Covad Communications) have all announced bankruptcy. Deployment snafus by the incumbent local exchange carriers (ILECs) have soured the word-of-mouth effect.[3]

NTIA should also consider the results from the Hart Research/The Winston Group survey that indicate that the “take rate” of high-speed services by dial-up ISP subscribers that have high-speed services available to them is only 13%.[4] The current price is an impediment to another 36% that are interested in high-speed services. A full 40% are not interested in obtaining broadband at all, even though it is available to them. As Assistant Secretary Bruce Mehlman stated at a recent Commerce Department Technology Administration workshop, broadband is available to 85% of homes in the United States, but only about 10% have signed up for broadband service.[5] Thus, price appears to be a key obstacle to broadband penetration. Competition is the best way to assure that consumers are offered the lowest prices.

D. Should government adopt as a goal "access for all" to broadband service? What would be the costs of such a goal? What policy initiatives, if any, should be considered to achieve that goal? Are there areas or persons that are unlikely to be served through marketplace forces?

Section 706 of the 1996 Act already establishes as a national goal the provision of advanced services to all Americans. The best way to achieve this goal is to rigorously and completely implement the pro-competitive provisions of the 1996 Act, including unbundling of essential network facilities. The policy initiatives that the government should undertake to promote this goal include designation of new UNEs meeting the “necessary” and “impair” standards that will permit CLECs to provide broadband services in an environment of “next generation” networks. Commenters do not support the establishment of explicit universal service support programs for broadband services, the costs of which would likely be very high. Instead, marketplace forces operating within the framework of a complete implementation of the 1996 Act will best achieve the goals of Section 706. Radical deregulation of ILECs, such as relief from unbundling obligations for advanced networks, would thwart competition and retard the rollout of broadband networks. The threat of competition, rather than deregulation, is the best way to provide incentives for ILECs to provide broadband services.

Commenters would be very concerned about expanding universal service programs to provide explicit support to broadband service in light of the cost of any such program. Policy makers should first examine the current universal service support program to determine whether there are inefficiencies that could be corrected, and whether there are sums in the universal service fund that could be applied for broadband service support, especially given the disbursement level of $4.4 billion in universal service support for 2000.[6] Universal service support for traditional essential services must be thoroughly and efficiently implemented before the universal service program is expanded.

Because ILECs have the incentive and ability to discriminate against CLECs, thereby thwarting the competition that could facilitate provision of broadband services, policy makers may want to consider more far reaching steps to preclude this discrimination. Because the loop is an essential facility, divestiture of the loop plant from the ILEC to an independent entity has been considered as one option to stimulate the growth of local competition.[7] A more modest alternative, but potentially as effective for promoting a level playing field for all competitors, is structural separation of the ILEC into wholesale and retail subsidiaries. If the ILEC retail subsidiary were required to obtain essential facilities from the wholesale subsidiary on the identical terms as CLECs, the ability of the ILEC to stand in the way of CLECs providing service to the widest range of consumers and businesses would be significantly reduced.

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

No. As recently explained in a letter to Secretary Evans from eight distinguished economists, “[a]s both history and economic theory have taught us, deregulating a monopoly without genuine prospects for competition does not induce it to deploy more infrastructure, only to exploit more severely the infrastructure that it has already in place by limiting its use and raising its price.”[8] Similarly, it is the recent decline in the threat of viable competition from CLECs that has caused ILECs to moderate somewhat their level of investment in broadband networks. “Perhaps most importantly, the fall of the competitive local exchange carriers (CLECs) has given the ILECs room to retire to ‘Bell Standard Time’ after years of trying to move in sync with ‘Internet Time.’ The result has been lower than expected DSL rollout rates in the US. . . . [9]

Thus, as stated, it is the threat of competition that best provides ILECs with incentives to invest in broadband networks. The interconnection, unbundling, and resale requirements of the Act should be maintained, therefore, since they are preconditions to competition in the broadband marketplace.

Moreover, there is no factual basis to support any claim that market-opening provisions of the Act inhibit ILEC investment in broadband facilities. In fact, ILECs are racing to keep up with demand for high capacity services. Verizon, for example, has recently informed the New York Public Service Commission that there “is unprecedented and unpredictable demand” for high speed data circuits and that it is increasing capital spending and deploying new technologies to meet this demand.[10] In 2000, Verizon’s capital spending for these services was nearly 4 times the amount spent just 3 years earlier.[11] Accordingly, ILEC claims that the pro-competitive requirements of the Act are inhibiting investment are false.

1. Are their investment disincentives attributable to the regulated rates for interconnection, unbundled network elements, and resold services?

No. As explained in response to Question E.4 below, the TELRIC pricing methodology ensures that the ILEC will be adequately compensated when a CLEC obtains interconnection or purchases access to network elements, including a reasonable profit. ILEC concerns with the TELRIC pricing methodology focus on their alleged inability to recover historic or embedded network costs under TELRIC.[12] Because there are no historic or embedded network costs to recover from new network facilities, TELRIC even as a theoretical matter permits full recovery of new network investment. Therefore, current unbundled network element pricing rules do not constitute a disincentive to invest in broadband networks. ILECs’ arguments concerning recovery of historic costs are also spurious because ILECs have generally already fully recovered historic costs through depreciation expense.

Further, TELRIC rates may be adjusted as necessary in order to account for additional risk. If the ILECs are able to prove that particular assets or services have unique circumstances that warrant a risk premium above normal capital costs, then the applicable TELRIC rate for those particular assets or services can be fine-tuned to capture such unique circumstances. Quite obviously, the burden must be on the ILECs to make such a demonstration in order to adjust the cost of capital input because it is not at all clear that such unique circumstances exist for broadband investment.

Nor do pricing rules for resale inhibit investment. Resold services are subject to a retail price discount to reflect costs that an ILEC incurs to provide a retail service that would be avoided if the service were provided wholesale. All other unavoided costs are recovered when a wholesale service is resold by a CLEC. Therefore, resale pricing rules permit ILECs to recover all costs other than avoided costs and therefore, by definition, do not constitute a disincentive to the ILEC to deploy advanced services facilities.

In reality, ILEC claims that TELRIC is a disincentive to investment are no more than a ruse to preserve a right to impose charges for antiquated networks that they would never be able to recover in a competitive market. As explained in response to Question E.4, in a competitive market, a local service provider would price services at forward-looking incremental cost. ILEC objections to TELRIC are no more than an effort to simultaneously preserve historic monopoly profits and thwart competition. ILECs would also deny consumers the benefits of current technical developments by requiring consumers to pay for outmoded technology instead of the most efficient technology. Policy makers will best serve the public interest by maintaining existing pricing rules for interconnection, unbundled network elements, resold services.

2. To what extent are those disincentives due to ILECs' 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 shown above, current pricing rules do not create disincentives for ILECs to invest in broadband services and facilities. Any additional costs incurred to accommodate potential requests from competitors, such as administrative costs, are already recovered in the rates set for operations support systems and other network elements. Therefore, these administrative costs do not create any disincentives for ILECs.

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?

ILECs do not face any substantial uncertainty that they will be unable to recover the costs of investment in broadband networks. ILECs control more than 90% of all access lines in the United States, and more than 95% of the residential and small business customer local exchange service market.[13] As dominant providers, they face essentially no risk that they will be unable to recover investment. ILECs do not face any risk that they will not recover investment because of the possibility that CLECs may obtain use of that investment as an unbundled network element. As discussed, TELRIC permits ILECs to fully recover costs, including a reasonable profit. In fact, ILECs face the best of both worlds: they will either recover costs from their customers or from sales to CLECs on a wholesale basis.

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?

The FCC has already fully assessed the strengths and weaknesses of its TELRIC methodology in the Local Competition Order. The FCC identified five benefits of TELRIC proposed by its supporters:

First, such an approach simulates the prices for network elements that would result if there were a competitive market for the provision of such elements to other carriers. In such a market, these parties argue, competition would drive prices to forward-looking costs, even if such costs were lower than a firm’s historical costs. Second, unbundled element prices based on forward-looking economic costs prevent incumbent LECs from exploiting their market power at the expense of their competitors that are dependent on the incumbent LEC’s facilities. Third, a forward-looking incremental cost methodology creates the right investment incentives for competitive facilities-based entry and creates incentives for the market to move towards competition while preserving opportunities for competition even if some network elements prove to be resistant to competition. Fourth, a pricing methodology based on forward-looking economic costs minimizes the incumbent LECs’ opportunities to engage in anticompetitive cross-subsidization that could delay the emergence of effective competition. Finally, these parties argue that pricing based on forward-looking economic costs will lead to lower prices for consumers.[14]

After considering the purported weaknesses of a TELRIC methodology asserted by the ILECs, the FCC concluded,

Adopting a pricing methodology based on forward-looking, economic costs best replicates, to the extent possible, the conditions of a competitive market. In addition, a forward-looking cost methodology reduces the ability of an incumbent LEC to engage in anti-competitive behavior. Congress recognized in the 1996 Act that access to the incumbent LECs’ bottleneck facilities is critical to making meaningful competition possible. As a result of the availability to competitors of the incumbent LEC’s unbundled elements at their economic cost, consumers will be able to reap the benefits of the incumbent LECs’ economies of scale and scope, as well as the benefits of competition. Because a pricing methodology based on forward-looking costs simulates the conditions in a competitive marketplace, it allows the requesting carrier to produce efficiently and to compete effectively, which should drive retail prices to their competitive levels. We believe that our adoption of a forward-looking cost-based pricing methodology should facilitate competition on a reasonable and efficient basis by all firms in the industry by establishing prices for interconnection and unbundled elements based on costs similar to those incurred by the incumbents, which may be expected to reduce the regulatory burdens and economic impact of our decision for many parties, including both small entities seeking to enter the local exchange markets and small incumbent LECs.[15]

The FCC also noted a key benefit of TELRIC: if unbundled network elements are not priced at TELRIC, new entrants would be at a significant disadvantage to the ILECs in terms of facilities deployment, and local competition would be stymied.

Contrary to the apparent assumption of this question, no changes to TELRIC are necessary to make it conducive to efficient infrastructure investment. As noted, TELRIC includes a reasonable allocation of forward-looking common costs, as well as a reasonable profit.[16] Accordingly, the ILEC can be assured that it will be adequately compensated by a CLEC purchasing unbundled network elements. Because TELRIC currently provides for full recovery of the ILEC’s forward-looking costs, including a reasonable profit, no changes to TELRIC are necessary to make it compatible with an aggressive investment program by ILECs.

Further, if TELRIC set unbundled network element rates below ILEC cost, one would expect ILECs to take advantage of such an opportunity by competing in other ILEC service territories. The absence of ILEC subsidiaries as competitors to other ILECs is proof that TELRIC rates do not understate ILEC forward-looking costs.

While an alternative methodology could be constructed not relying on ILEC costs, such an approach would be unwise. ILECs have economies of scale and scope that make them the least-cost provider of telecommunications services. These economies should be reflected in prices charged for UNEs so that consumers can benefit from these economies when service is provided by a CLEC. In addition, using costs other than ILEC costs would likely result in a mismatch between the unbundled network element rate and the ILEC’s cost, possibly resulting in over-recovery and an ILEC windfall.

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?

This is not a feasible approach for several reasons. There is no direct correlation between when a facility is deployed and the amount of bandwidth it will support. Fiber optic transport facilities have been used for many years for traditional voice service, but they are also capable of transporting vast amounts of data traffic. The first microwave T-1 facilities were built after World War II, while new copper loops are being deployed to end users even today. “New” facilities represent old and new technologies, and they are deployed alongside “legacy” facilities that are being configured to provide broadband services. So-called new broadband facilities will be integrated into legacy networks, not installed as entirely separate networks.

For example, one type of “broadband” facility is a high-capacity line to a high-volume end user such as a business customer. For this customer, the telecommunications service provider would provide the equivalent of a “special access” circuit to the end user’s premises to provide the amount of bandwidth requested. Special access circuits have individual “channels” that may be configured in almost any combination to satisfy the customer’s needs. For example, a DS-1 line has 24 “voice grade” channels. Thus, one DS-1 line may be configured to provide capacity for 24 telephone lines, or a single 1.544 megabits-per-second data line.

Similarly, digital subscriber line (“DSL”) services are provided by connecting new electronic facilities on both ends of an existing copper loop into an end user’s premises. The virtue of DSL service is that it takes advantage of existing plant so that new infrastructure does not need to be deployed over “the last mile” to an end user’s premises. By attaching a DSL modem on one end of the copper loop, and a “digital subscriber line access multiplexer” (“DSLAM”) on the other end of the copper loop (i.e., inside the central office serving that loop), existing loop plant can be used to provide a high-bandwidth service. The electronics on both ends are the “broadband” components to this service. The same loop used to provide traditional voice service can be used simultaneously to provide DSL service.

In short, these broadband facilities and services – high capacity loops and DSL -- use elements of, and are tightly integrated into, the existing legacy network. It would not be feasible or practical to separate these broadband facilities for regulatory purposes.

Nor should this approach be undertaken if the purpose would be to immunize broadband facilities from pro-competitive goals of the Act. In particular, “broadband” versus “non-broadband” is not a useful regulatory distinction for purposes of defining ILEC unbundling obligations. Congress has already established an appropriate standard for determining whether a network element must be provided on an unbundled basis designed to promote competition in local telecommunications services. Under that standard, ILECs must only make available those network elements the absence of which would impair a CLEC’s ability to provide a competitive service. By definition, a network element meets the standards of Section 251(d) if it is proprietary and “absolutely required for the competitor’s provision of its intended service,” or non-proprietary and a CLEC’s “ability to offer a telecommunications service in a competitive manner is materially diminished in value without access to that element.”[17] The proposal to eliminate unbundling obligations for new broadband facilities would guarantee that ILECs could preclude competition simply by building new essential facilities, such as loops. For this reason, the statutory unbundling standard appropriately does not include a comparison of “legacy” facilities with “new” facilities.

To the extent CLECs must have access to facilities in order to have a meaningful opportunity to compete with the ILEC, both new and legacy facilities are, and should be, subject to the unbundling requirement. Any proposal that “new” facilities should be treated differently than “legacy” facilities ignores the plain fact that ILECs continue to serve more than 90% of all access lines and that there is no realistic scenario in which CLECs are able to duplicate significant portions of the ILEC network in the foreseeable future. Again, the 1996 Act already provides a mechanism for ILECs to obtain relief from unbundling obligations. It is not necessary or desirable to substitute a “new” versus “legacy” test for that purpose.

1. What effects would changes in the regulatory structure for broadband services and facilities have on regulation and competition with respect to voice telephone and other non-broadband services?

It is not clear what potential “changes” are referred to in this question. In any event, Congress in the 1996 Act mandated an end to all local telephone monopolies. Treating broadband services and facilities separate from other elements of the ILEC network would thwart that objective of Congress by relieving ILECs of meaningful obligations to open their networks.

Moreover, as noted, it is not feasible or advisable to separate non-broadband and broadband services. Advanced telecommunications services are increasingly dependent on digital packet switching rather than outmoded circuit switching. New market entrants, as well as incumbents, send voice and data over the same facilities. And voice service can be provided by data services. Deregulation, or separate regulation, of broadband services and facilities would threaten CLECs ability to provide voice as well as data service.

Commenters stress again that CLECs, not ILECs, led the way toward more affordable broadband services, deploying technology that ILECs chose not to offer to consumers out of fear of cannibalizing their existing product markets.[18] For example, for an end user that wanted 1.544 Mbps of bandwidth, the ILEC would rather sell a DS-1 special access circuit at inflated rates than a much less expensive DSL service that provides the same level of capacity. Without competition, the ILEC was able to compel customers to purchase the higher priced DS-1 service. The emergence of scores of CLECs that innovated and brought price competition for these services pushed the ILECs to take their DSL technology off the shelf and market it. Competition alone pushed ILECs to offer consumer DSL services, but now ILECs claim they need special treatment to continue to deploy broadband. The threat that competitive providers will gain market share continues to provide the best incentive for ILECs to deploy cost-effective broadband services more rapidly.

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?

ILECs are upgrading networks in ways that threaten to preclude meaningful use of the network by CLECs. Thus, some ILECs are installing remote terminals at intermediate points in the loop. Copper extends from the customer’s premises to the remote terminals, and fiber feeder extends from the remote terminals to the central offices. At the same time, ILECs are resisting any obligation to provide unbundled access to the fiber portion of loops.

Under this situation, CLECs would be unable to provide meaningful competition for provision of broadband services because even assuming CLECs were afforded access to the unused copper, copper inherently does not have the capacity of fiber and CLECs would not be able to provide the same range and quality of broadband services as the ILEC. Nor could they offer them at the same price, since only the ILEC could take advantage of the efficiencies of fiber. Nor would CLECs be able to undertake the significant expense of extending their own fiber to thousands of remote terminals. Accordingly, CLEC access to legacy copper in an environment of fiber-based next generation ILEC networks would guarantee that ILECs could monopolize the broadband market. In order to prevent ILEC monopolization of the broadband marketplace, the FCC must designate new fiber-based UNEs that will afford access to the end user from the central office.

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 discussed above, use of the displaced copper plant would not enable CLECs to offer competitive broadband services, especially in comparison to ILECs using remote terminals and fiber feeder.

4. What regulations, if any, should apply to new broadband facilities and/or services to ensure a competitive marketplace?

Broadband services and facilities provided by telecommunications companies are now, and should continue to be, subject to the pro-competitive regulatory regime established by the 1996 Act. Complete implementation and strict enforcement of the 1996 Act is the best way to satisfy the mandate of Congress and ensure a competitive marketplace for all telecom facilities and services. This mandate is not limited to any particular aspect of local telecommunications, but applies to all telecommunications, including broadband services.

The NTIA may find recent action by the European Community a useful guide. The European Community has issued a binding regulation on unbundled access to the local loop that compels member countries to facilitate local loop unbundling in order to provide broadband services. The European Community issued the following statement about the local loop, which is equally applicable in the United States:

The ‘local loop’ is the physical twisted metallic pair circuit in the fixed public telephone network connecting the network termination point at the subscriber's premises to the main distribution frame or equivalent facility. As noted in the Commission's Fifth Report on the implementation of the telecommunications regulatory package, the local access network remains one of the least competitive segments of the liberalized telecommunications market. New entrants do not have widespread alternative network infrastructures and are unable, with traditional technologies, to match the economies of scale and the coverage of operators designated as having significant market power in the fixed public telephone network market. This results from the fact that these operators rolled out their metallic local access infrastructures over significant periods of time protected by exclusive rights and were able to fund investment costs through monopoly rents.[19]

With respect to the local loop and provision of broadband services, the European Community also said:

Unbundled access to the local loop allows new entrants to compete with notified operators in offering high bit rate data transmission services for continuous Internet access and for multimedia applications based on digital subscriber line (DSL) technology as well as voice telephony services. A reasonable request for unbundled access implies that the access is necessary for the provision of the services of the beneficiary, and that refusal of the request would prevent, restrict or distort competition in this sector.[20]

This is also the conclusion reached by James Glassman, a Resident Fellow economist with the American Enterprise Institute, and William H. Lehr, of the Massachusetts Institute of Technology. Their recent report, “The Economics of the Tauzin-Dingell Bill: Theory and Evidence,” addresses the impact of relaxed regulation of ILEC broadband services.[21] The paper concludes that reducing the requirements under the 1996 Act for broadband services “will harm the prospects for competition, and, with competition reduced or eliminated, consumer choice will atrophy. Prices will rise, high-speed access to the Internet will be significantly deterred and even stricter regulation will be necessary.”[22] In their view, “the enormous increase in monopoly power [that deregulation of broadband] would produce will necessitate the introduction of new regulations in the future.”[23] Thus, in order to assure a fully competitive broadband marketplace, regulators should fully apply and enforce the unbundling and other market-opening requirements of the 1996 Act.

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?

Commenters currently deploy their own switches and lease transport facilities and loops from ILECs in the areas where Commenters are providing service. On occasion, Commenters lease transport facilities from competitors when competitive options are available. Beyond that, Commenters do not have specific information in response to this question. Commenters refer NTIA to the FCC’s reports on high-speed services for Internet access and broadband deployment, available at http://www.fcc.gov/Bureaus/Common_Carrier/ Reports/FCC-State_Link/comp.html. NTIA may also find it useful to review the record in the FCC’s UNE Remand Proceeding. There, the FCC considered the extent of local switching provided by competitors in connection with re-evaluating which network elements were required to be provided on an unbundled basis.[24] The FCC also considered the extent that competitors had provisioned loops, and concluded that “as a practical matter, building loop plant continues to be, in most cases, prohibitively expensive and time-consuming.”[25]

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 manage the increased traffic load on their shared distribution systems caused by multiple ISPs?

Commenters do not have any specific information in response to this question.

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?

Commenters do not have any specific information in response to this question.

J. How should the broadband product market be defined? What policy initiatives would best promote intra-modal and inter-modal broadband competition?

See responses to Questions A. and B. above.

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?

It would not be appropriate to establish a single regulatory regime for all broadband services. Cable companies and telephone companies are subject to different forms of regulation because they offer different products and services. The FCC is currently considering the legal and policy aspects of regulating cable companies as telecommunications carriers when they provide Internet access services.[26]

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.

Lack of adequate building access has proven to be a significant obstacle to the development of local competition and deployment of broadband facilities. Government policy should require building owners to provide CLECs with the same rights of access as those offered to ILECs. For example, if payments are required from CLECs, the ILEC should be required to make payment for building access also. Until ILECs and CLECs are competing on a level field, CLECs will be required to spend considerably more time, effort, and resources to obtaining access to potential customers than the ILEC. Facilities-based competition will be illusory unless CLECs have the ability to connect their facilities to actual customers in buildings.

Similarly, local government must be required to implement restrictions on rights-of-way on a non-discriminatory basis. Whatever franchise fees, usage payments, construction restrictions, or other conditions imposed on CLECs must also apply to ILECs. If federal legislation is necessary in order to preempt contrary state law or local ordinances, NTIA should pursue such legislation to make the playing field level for all local exchange carriers.

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?

Commenters are very concerned about access to federal lands and buildings. Focal, for example, provides local service to a number of bodies of the federal government, including the United States Congress. Focal serves federal customers through avenues other than Metropolitan Area Acquisitions (“MAA”) bidding. While the Government Services Administration (“GSA”) has a policy of expecting landlords of federal tenants to allow building access to MAA winners, this policy should be expanded to require access for those local exchange carriers that are selected by the government to provide service.

GSA should effectively pursue and protect fully the government's interest in permitting each governmental entity to secure service from the local exchange carriers it chooses without delay or discrimination. GSA should use procurement as a means to ensure that other tenants in privately owned buildings from which GSA leases spaces also have the same right to be served by competing carriers. Federal leasing dollars should only be committed to buildings that ensure that all tenants in the building, including government tenants, may be accessed by CLECs on reasonable terms and conditions, and without delay or discrimination. Demanding such access through the procurement process would ensure that federal agencies, as well as their neighbors in the building, gain an opportunity to secure competitive alternatives, to obtain redundancy of service, and to benefit from facilities-based competition. Of course, the federal government should also ensure that CLEC access to federal buildings should be available promptly, simply, and on reasonable and nondiscriminatory terms and conditions.

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 noted above, broadband services and facilities are, and should continue to be, subject to the pro-competitive market-opening provisions of the 1996 Act. No additional legislation is necessary with respect to those provisions. However, stricter enforcement of the 1996 Act and greater penalties for ILEC obstruction would help ensure development of local competition. Commenters support the “American Broadband Competition Act of 2001,” H.R. 1698, (“Cannon-Conyers”), the “Broadband Competition and Incentives Act of 2001,” H.R.1697 (“Conyers-Cannon”), and the “Telecommunications Fair Competition Enforcement Act,” S.1364 (“Hollings Bill”). These bills would provide ILECs with greater incentives to meet their statutory obligations, and also provide for structural separation of the Bell Operating Companies in the event of continued non-compliance.

Respectfully submitted,

Richard J. Metzger

FOCAL COMMUNICATIONS CORPORATION

7799 Leesburg Pike

Suite 850 North

Falls Church, VA 22043

(703) 637-8778

John Sumpter

PAC-WEST TELECOMM, INC.

1776 March Lane

Suite 250

Stockton, CA 95207

(209) 926-3300

Dated: December 19, 2001

____________________________________

Andrew D. Lipman

Richard M. Rindler

Patrick J. Donovan

Michael W. Fleming

SWIDLER BERLIN SHEREFF FRIEDMAN, LLP

3000 K Street, N.W., Suite 300

Washington, D.C. 20007

Tel: (202) 424-7500

Fax: (202) 424-7645

Counsel for FOCAL COMMUNICATIONS CORPORATION, AND PAC-WEST TELECOMM, INC.

[1] Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 11 FCC Rcd 15499 (1996), vacated in part, Iowa Utils. Bd. v. FCC, 120 F.3d 753 (8th Cir. 1997), rev’d in part, aff’d in part, AT&T Corp. v. Iowa Utils. Bd., 119 S. Ct. 721 (1999) (“Local Competition Order”) ¶ 3.

[2] This thorough-going implementation would include designation of appropriate new unbundled network elements applicable to ILEC “next generation” networks consistent with the standards of the Act.

[3] Salomon Smith Barney, Industry Note, Communications Components, Global Broadband Access Trends Remain Healthy through Q3-01 (Nov. 23, 2001) at 2.

[4] “New National Poll Finds Despite Wide Availability of Broadband, Few Are Signing Up,” Hart Research/The Winston Group, Nov. 29, 2001, available at http://www.voicesforchoices.com.

[5] Dugie Standeford, Brigitte Goldberg, “Digital Rights Management Called Key to Broadband Growth,” Communications Daily, Dec. 18, 2001, at 2.

[6] USAC Quarterly Administrative Filings to the Federal Communications Commission, Second Quarter 2001, at 8, available at http://www.fcc.gov/ccb/universal_service/quarter.html#2001.

[7] See, e.g., Public Notice, “Commission Seeks Comment On LCI Petition For Declaratory Ruling Concerning Bell Operating Company Entry Into In-Region Long Distance Markets,” CC Docket No. 98-5 (rel. Jan. 26, 1998) (seeking comment on petition of LCI International Telecom Corp. to create a “fast track” plan to expedite residential local competition and Section 271 entry through establishment of independent RBOC wholesale and retail service companies.)

[8] Letter from William J. Baumol, B. Douglas Bernheim, Robert E. Hall, William Lehr, John W. Mayo, Janusz A. Ordover, Frederick R. Warren-Bolton, and Robert D. Willig to Hon. Donald L. Evans, Hon. Lawrence Lindsey, Hon. Paul H. O’Neill, Hon. R. Glenn Hubbard, Hon. Randall S. Kroszner, and Hon. Mark B. McClellan, dated December 11, 2001, at 3 (“Economists Letter”).

[9] Salomon Smith Barney, Industry Note, Communications Components, Global Broadband Access Trends Remain Healthy through Q3-01 (Nov. 23, 2001) at 2.

[10] Opinion and Order Modifying Special Services Guidelines for Verizon New York Inc., Conforming Tariff, and Requiring Additional Performance Reporting, Cases 00-C-2051 and 92-C-0665, Opinion No. 01-1, NYPSC, June 15, 2001, p. 10.

[13] FCC News Release, “Federal Communications Commission Releases Latest Data On Local Telephone Competition,” May 21, 2001.

[16] Local Competition Order at ¶¶ 694, 699.

[17] Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 15 FCC Rcd 3696 (1999) (“UNE Remand Order”) at ¶¶ 44, 52.

[18] See Economists Letter at 2 (“[A]s is well documented in the literature of economics, monopolists do not invest the full amounts required for economic efficiency when they are provided with monopoly returns on their investments. In particular, a monopolist will resist investing in new technology if its introduction will undercut the value of its existing assets.”)

[19] “Regulation (EC) No 2887/2000 of the European Parliament and of the Council of 18 December 2000 on unbundled access to the local loop,” Recital 3.

[21] The Glassman-Lehr Report is available at http://www.techcentralstation.com/images/pdf/telecomstudy.pdf.

[26] Inquiry Concerning High-Speed Access to the Internet Over Cable and Other Facilities, GEN Dkt. No. 00-185, Notice of Inquiry, 15 FCC Rcd 19287 (Sep. 28, 2000).