[Senate Hearing 113-265]
[From the U.S. Government Publishing Office]
S. Hrg. 113-265
STATE OF WIRELINE COMMUNICATIONS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY, AND THE INTERNET
of the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
JULY 25, 2013
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
JOHN D. ROCKEFELLER IV, West Virginia, Chairman
BARBARA BOXER, California JOHN THUNE, South Dakota, Ranking
BILL NELSON, Florida ROGER F. WICKER, Mississippi
MARIA CANTWELL, Washington ROY BLUNT, Missouri
MARK PRYOR, Arkansas MARCO RUBIO, Florida
CLAIRE McCASKILL, Missouri KELLY AYOTTE, New Hampshire
AMY KLOBUCHAR, Minnesota DEAN HELLER, Nevada
MARK WARNER, Virginia DAN COATS, Indiana
MARK BEGICH, Alaska TIM SCOTT, South Carolina
RICHARD BLUMENTHAL, Connecticut TED CRUZ, Texas
BRIAN SCHATZ, Hawaii DEB FISCHER, Nebraska
MARTIN HEINRICH, New Mexico RON JOHNSON, Wisconsin
EDWARD MARKEY, Massachusetts JEFF CHIESA, New Jersey
Ellen L. Doneski, Staff Director
James Reid, Deputy Staff Director
John Williams, General Counsel
David Schwietert, Republican Staff Director
Nick Rossi, Republican Deputy Staff Director
Rebecca Seidel, Republican General Counsel and Chief Investigator
------
SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY,
AND THE INTERNET
MARK PRYOR, Arkansas, Chairman ROGER F. WICKER, Mississippi,
BARBARA BOXER, California Ranking Member
BILL NELSON, Florida ROY BLUNT, Missouri
MARIA CANTWELL, Washington MARCO RUBIO, Florida
CLAIRE McCASKILL, Missouri KELLY AYOTTE, New Hampshire,
AMY KLOBUCHAR, Minnesota DEAN HELLER, Nevada
MARK WARNER, Virginia DAN COATS, Indiana
MARK BEGICH, Alaska TIM SCOTT, South Carolina
RICHARD BLUMENTHAL, Connecticut TED CRUZ, Texas
BRIAN SCHATZ, Hawaii DEB FISCHER, Nebraska
RON JOHNSON, Wisconsin
C O N T E N T S
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Page
Hearing held on July 25, 2013.................................... 1
Statement of Senator Pryor....................................... 1
Statement of Senator Wicker...................................... 2
Statement of Senator Thune....................................... 4
Statement of Senator Klobuchar................................... 5
Prepared statement........................................... 5
Statement of Senator Fischer..................................... 6
Statement of Senator Blumenthal.................................. 58
Statement of Senator Markey...................................... 61
Witnesses
Jeff Gardner, President and Chief Executive Officer, Windstream
Corporation on behalf of the United States Telecom Association. 7
Prepared statement........................................... 8
Shirley Bloomfield, Chief Executive Officer, NTCA--The Rural
Broadband Association.......................................... 12
Prepared statement........................................... 14
Jerry James, CEO, COMPTEL........................................ 20
Prepared statement........................................... 21
Larry Downes, Internet Industry Analyst and Author............... 26
Prepared statement........................................... 28
Gigi B. Sohn, President and CEO, Public Knowledge................ 38
Prepared statement........................................... 40
Appendix
Hon. John D. (Jay) Rockefeller IV, U.S. Senator from West
Virginia, prepared statement................................... 67
Response to written questions submitted by Hon. Mark Warner to:
Jeff Gardner................................................. 68
Response to written questions submitted to Shirley Bloomfield by:
Hon. Mark Warner............................................. 77
Hon. Mark Begich............................................. 83
Response to written questions submitted by Hon. Mark Warner to:
Jerry James.................................................. 85
Larry Downes................................................. 91
Gigi B. Sohn................................................. 103
STATE OF WIRELINE COMMUNICATIONS
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THURSDAY, JULY 25, 2013
U.S. Senate,
Subcommittee on Communications, Technology, and the
Internet,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:25 a.m. in
room SR-253, Russell Senate Office Building, Hon. Mark Pryor,
Chairman of the Subcommittee, presiding.
OPENING STATEMENT OF HON. MARK PRYOR,
U.S. SENATOR FROM ARKANSAS
Senator Pryor. I will go ahead and call our meeting to
order here.
And let me first apologize. I was in an appropriations
meeting and they needed me for a quorum to get some bills
moving, and we are trying to get our appropriations bills
moving back on regular order. So I apologize for the delay.
Let me just say good morning and welcome to the
Subcommittee. This is the ``State of Wireline Communications''
hearing. I want to thank all of our witnesses for being here
and I want to thank everybody for being here and participating
in this to make this a reality.
This is the fourth of the Subcommittee's so-called ``state
of'' hearings. We have had a series of these to learn about
various aspects of telecommunications. They have been well
attended by Senators. I know that today we have lots of things
going on, including a lot of business on the floor and other
committees. So we will see some Senators coming in and out.
I certainly want to welcome Senator Wicker and his great
work on this subcommittee and his great work in the Senate.
The public telephone network remains the backbone of our
nation's communications infrastructure. Over the years, there
have been innumerable benefits to American individuals and also
businesses with that network, and we understand that. And if
you look at our economy, you just think about the fundamental
changes that have happened because of telephone service and
wireline communications. There are just almost too many to
enumerate.
But in recent decades, we have also gone from a world of
regulated monopolies to a vibrant market that has incumbents,
competitors, and over-the-top providers. And if you look back
20 years--the 1996 Telecom Act--the amount of innovation,
creation, investment, and advancement in our ability to connect
is just truly astounding. It has been a huge American success
story, and it is something that as a nation we all should be
very proud of.
And there is one fundamental ideal that has not gone away
and that is we want all Americans to be able to have access to
this network. We want that when a call is made, we want it to
go to the intended person. We want it to be completed and that
the network is also reliable for individuals and businesses.
And that is also true in time of emergency. We do not want
these things to stop and not work when sometimes people need it
the most.
But nonetheless, I know that Senator Klobuchar and others
have talked about the concern that we have about calls not
being completed. That is a real concern especially in rural
America. We also see this continuing problem of unauthorized
charges appearing on people's phone bills. I think some of our
witnesses will talk about that.
Businesses struggle. Some in the industry will struggle
because of the changing environment where there is kind of an
uneven playing field when it comes to the regulatory
environment, and sometimes that is not real clear and it is
hard to navigate that. And we appreciate that. We would like to
hear some discussion of that as well today.
And also, one of the big changes that is going on right now
is the transition from circuit-switched to Internet Protocol
technologies, and this offers a great potential benefit to
everyone. But it also challenges us to look with fresh eyes at
the existing regulations we have and to maybe reexamine where
we are.
But nonetheless, this bedrock principle that we have talked
about before, that everyone should benefit from our national
communications network--that still remains. And we do not want
to leave parts of America behind, and I think for some of us,
the things we focus on in rural America--we do not want to have
the tale of two Americas here where you have the urban and
suburban and they have the latest and the greatest and the most
cutting-edge, and then rural America is really decades behind.
And we need to make sure we do not do that.
Today's panel is made up by a group of very qualified
individuals. I appreciate all the panelists for being here.
They represent a broad spectrum, a broad cross section of the
industry, including the incumbent, competitive, and rural
carriers, as well as public interest representatives, and then
industry analysts. So again, we appreciate your range of
perspectives. We appreciate your valuable observations, and we
all look forward to your testimony.
And with that, I will turn it over to Senator Wicker.
STATEMENT OF HON. ROGER F. WICKER,
U.S. SENATOR FROM MISSISSIPPI
Senator Wicker. Thank you, Chairman Pryor, and thank you
for holding this hearing. It is the fourth of the hearings on
the state of communications.
And let me say at the outset how comforting it is to have
as a Chairman someone who knows how to properly pronounce the
word ``wireline.''
[Laughter.]
Senator Wicker. For the Senator from Minnesota, it may take
more effort to pronounce those diphthongs; but not for Roger
Wicker and Mark Pryor, my neighbor from across the river.
The wireline sector is currently in a state of flux.
Another way of saying it would be we are in a state of
transition. Industry and consumers have been migrating away
from traditional voice telephony, and in quick fashion.
Consumers are frequently opting to cut the cord and move to
mobile wireless and voice over IP services as their primary
home phone lines. We are making an exciting conversion to a
broadband world, a world that has seen rapidly growing
innovation, competition, and options for the American consumer.
These options will not only improve the day-to-day lives of our
constituents but, most importantly, provide the tools that will
stimulate a new broadband economy.
With this transition, there are a number of issues that we
as policymakers must examine. Priorities conceived in an era
dominated by copper line infrastructure are ripe for
reconsideration and modernization in the IP era. The
transformation of the Federal Universal Service Fund from a
program dedicated to promoting traditional voice communication
over the publicly switched telecommunications network to one
focused on broadband delivery to all corners of our nation is
of vital importance to rural states like the ones represented
on this panel today.
We discussed many of these issues in our first subcommittee
hearing this year, Mr. Chairman. It focused on the state of
rural communications. At that hearing what became clear was
that while the FCC successfully put the USF on a path to
modernization, there were still a number of holes that needed
to be filled to ensure that the program continues on a
successful path. Providers should be encouraged, not
discouraged, to build out and deploy broadband to our
constituents.
Moving forward, we need to ensure that the USF operates in
a technology-neutral fashion. That includes all providers
committed to serving rural America. I look forward to hearing
our witnesses' testimony on this topic.
Another transition that is receiving a growing amount of
attention is the IP, or Internet Protocol, transition. As
highlighted in the FCC's National Broadband Plan, the IP
transition is expected to bring the full benefits of IP
broadband networks to our constituents. This network
modernization will not only provide far more efficient voice
and data services than we have today, but also dramatically
upgrade educational services, next generation 911, and health
IT systems. We need to keep our eye on the ball. There is
consumer demand for high speed broadband service applications
now, and it is in their best interest that we make progress.
Presupposing that regulation is needed on a platform that has
flourished in the absence of regulation should not be our
starting point. That being said, I recognize this is a
complicated issue with many moving parts.
I see that we are now joined by Ranking Member Thune. He
and I agree this is an important enough issue that we have
directed our respective staffs to engage stakeholders and
experts analyzing all aspects of the transition and that we
need to determine whether Congress may have a role in fostering
the modernization of our nation's communications network
infrastructure.
So thank you, Mr. Chairman, for holding this important and
very timely hearing, and thank you to our witnesses, who I
greeted before the hearing began. I look forward to hearing
your views. Thank you, sir.
Senator Pryor. Thank you.
And we have been joined by Senator Thune, the full
committee's Ranking Member. Senator Thune?
STATEMENT OF HON. JOHN THUNE,
U.S. SENATOR FROM SOUTH DAKOTA
Senator Thune. Well, thank you, Chairman Pryor and Senator
Wicker. And I want to thank our witnesses for being with us
this morning.
And I want to say, Mr. Chairman, to you and Senator Wicker
that I commend you for continuing these ``state of'' hearings
to inform our committee about our nation's communications
infrastructure and about the services, the opportunities, and
the challenges facing our constituents as we move deeper into
the 21st century.
Rural communications are a priority of mine, and I am
continually amazed at the capabilities that are being delivered
in South Dakota. My home state is one of the national leaders
in fiber build-out, thanks to companies like CenturyLink,
Midcontinent Cable, and SDN Communications with its 17 member-
owners. Of course, connectivity is not just about physical
wires. The satellite services and new 4G mobile networks being
deployed today offer even more economic and social opportunity
for my fellow South Dakotans and consumers across the country.
Much of this deployment is the result of our commitment to
universal service. As we move forward, we should not allow
existing networks to wither or future services to go unoffered
because of unpredictable or inadequate universal service
support. The FCC is directed by law to provide predictable and
sufficient mechanisms to preserve and advance universal
service, and it needs to abide by that directive.
The state of wireline communications today is clearly one
of transition. The older copper wire networks of the 20th
century are being replaced by fiber optics. Circuit-switched
telephony is migrating to packet-switched IP technology.
American households are no longer faced with phone service from
a government-protected monopoly. In fact, less than one-third
of households today purchase voice service from their local
telephone companies, and nearly 40 percent have cut the cord,
forgoing wireline voice service altogether.
Furthermore, we do not just have competition among multiple
wired and wireless networks today but also new alternatives to
real-time voice communication, through texts, tweets, chats,
and social media. These alternatives are IP-enabled and
delivered over broadband, and they are largely unregulated. But
as consumers demonstrate a preference for less-regulated,
competitive alternatives to traditional local phone service,
our laws continue to presume a monopoly exists for local voice
communications.
As mentioned by Senator Wicker, we have tasked our staffs
with engaging stakeholders and experts to both stay abreast of
the ongoing IP transition and to look for ways where Congress
may be helpful in the modernization of our nation's
communications networks.
We should not approach the IP transition with anxiety and
fear but with optimism and vigilance. Being distracted by what
might be lost will be less useful than considering what has and
will be gained. This transition brings forward many complex and
deeply entrenched issues. We must, therefore, identify the
challenges that an all-IP world presents and then determine how
ingenuity and innovation and perhaps regulation will be able to
overcome those challenges.
We should acknowledge the growing choices in today's market
and pivot from the century-old default assumption that our
nation's communications system is uncompetitive. In laying out
a strategic plan for the FCC in 1999, former FCC Chairman
William Kennard proclaimed--and I quote--``We must resist
imposing legacy regulations on new technologies. Our goal
should be to deregulate the old instead of regulating the
new.'' I could not have said it better myself.
Mr. Chairman, we should focus on empowering individual
consumers, entrepreneurs, and innovators. We should target
limited Federal support to, and encourage investment in, areas
that remain underserved because of structural economic reasons.
We should understand the promise of what an all-IP world holds
for better public safety, better education, better health care,
and a more vibrant civic society than we know today.
This may require removing obstacles which may include
repealing or amending outdated laws, ending inefficient
regulations, or even nudging reluctant incumbent business
interests forward. American consumers are driving the broadband
economy. We, as policymakers, should take their cue and ensure
that they--not the government--manage the marketplace.
I look forward to a bright communications future for our
nation and I appreciate our witnesses' thoughts today about how
we can best pursue it.
Thank you, Mr. Chairman.
Senator Pryor. Thank you. I know we are going to move to
our panel in one moment. Would you like to say a word?
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. Oh, thank you, Senator Pryor. I will put
my statement on the record.
[The prepared statement of Senator Klobuchar follows:]
Prepared Statement of Hon. Amy Klobuchar, U.S. Senator from Minnesota
Thank you, Chairman Pryor for holding this hearing to talk about
the state of our wireline communications.
While we continue to see a trend of more and more Americans going
mobile and cutting the cord to their landline phones in favor of
wireless options, it is important to note that the wireline networks
provide the necessary and vital backbone for those mobile services.
Additionally, businesses small and large continue to rely on wireline
communications every day to connect with their customers around the
world.
I continue to be encouraged by the innovations in the
communications industry. But we do need to promote consistency and
clarity in the regulations that govern the industry. In turn, companies
need to also provide their customers with clarity and consistency--this
means they need to protect consumers from cramming, provide accurate
data about their services, and complete their calls to rural areas.
We need to make sure that wireline services are billed fairly and
transparently for consumers, that connections are reliable, and that
rural areas have the same quality of service as urban areas. Call
completion issues have continued to be an issue in my state and in
other rural areas which is why I have introduced a resolution with
Senator Fischer urging the FCC to act expeditiously on call completion
problems to rural America through both rulemaking and enforcement
actions. I am pleased that the Committee will be considering this
resolution on next week's markup.
Communications services are vital to the economic future of this
country and to Minnesotans, and as the network continues to evolve we
need to continue to make sure that consumers are protected.
Senator Klobuchar. But I did want to say correctly
``wireline.''
[Laughter.]
Senator Klobuchar. Senator Thune, Senator Fischer, you
should know--especially Senator Fischer--that Senator Wicker
was saying that only Southerners can pronounce that correctly.
I would like to have reflected on the record that it has been
found that Midwestern women's voices are the most neutral and
soothing.
[Laughter.]
Senator Klobuchar. And that is why they are often picked to
be television anchors. And so that is the last thing I will say
on this matter.
But we are looking forward----
Senator Wicker. And alluring.
[Laughter.]
Senator Klobuchar. Yes.
Senator Fischer and I have a resolution on call completion
that I understand is going to be on the agenda next week. And
so I am interested in hearing from you on that as well.
Thank you.
Senator Pryor. Thank you.
Senator Fischer, would you like to say a word?
STATEMENT OF HON. DEB FISCHER,
U.S. SENATOR FROM NEBRASKA
Senator Fischer. Thank you, Mr. Chairman. I can only agree
with my mentor here in the Senate, Senator Klobuchar. I look
forward to the panel and having a chance to have a good
conversation and back and forth with you on these issues.
Thank you so much and thank you, Mr. Chairman and Ranking
Member Wicker, for having this hearing.
Senator Pryor. Thank you.
Let me go ahead and introduce our entire panel. In order to
save some time, I will just do a very brief introduction. They
all come with very strong credentials. We will make their
backgrounds part of the official record. And I would ask each
one to do 5 minutes, and we will make your full written text a
part of the record as well.
But, first, let me start with Jeff Gardner. He is Chairman
of the Board of Directors of USTelecom and President and CEO of
Windstream Corporation. Then we have Shirley Bloomfield, CEO of
NTCA--The Rural Broadband Association. We have Jerry James, CEO
of COMPTEL--The Competitive Communications Association; then
Larry Downes, Internet industry analyst and author; and Gigi
Sohn, President and Co-Founder of Public Knowledge. So, again,
thank you all.
I recognize each of you for 5 minutes. Mr. Gardner, will
you lead off? Thank you.
STATEMENT OF JEFF GARDNER, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, WINDSTREAM CORPORATION ON
BEHALF OF THE UNITED STATES TELECOM ASSOCIATION
Mr. Gardner. I am Jeff Gardner, President and CEO of
Windstream, a major rural ILEC and also one of the nation's top
competitive carriers. I am testifying in my capacity as
Chairman of the Board at USTelecom.
I have three points about the state of wireline
communications.
First, wireline is the vital infrastructure for all
communications.
Second, rural networks are at a critical point, with
significant uncertainty at the FCC and in the states.
Third, we must create a pro-consumer, pro-competition
regulatory framework for the IP era.
Through all the changes in my 30-year career in the
wireless and wireline industries, the wireline network remains
the linchpin. Broadband, WiFi, LTE, 4G, Ethernet, and so on all
rely on robust wired networks, and each day the demand for
those networks grows. Last year, wireline networks handled 98
percent of total U.S. data traffic. USTelecom's members are
investing billions each year to keep pace with the phenomenal
growth in data consumption.
Wireline technology is essential to providing wireless
services, whether it is connecting cell towers to the rest of
the network or offloading wireless traffic onto WiFi at home,
the coffee shop, or an airport.
Rural policy and networks are at a critical point.
Universal Service reform and intercarrier comp cutbacks are
generating serious financial pressure and uncertainty. USF
reform has become shorthand for a top-to-bottom rewrite of
rural programs, including Universal Service, as well as
intercarrier compensation. The reductions in revenue are
significant and austere. This impedes our ability to serve
rural customers.
To recap FCC actions since 2011, intercarrier compensation
has been slashed by billions of dollars while Universal Service
remains level funded. Meanwhile, the FCC expects more from us,
namely preserving full voice coverage while substantially
expanding rural broadband.
Intercarrier compensation cuts are well underway.
Meanwhile, USF reforms that promise to bring added support to
larger price cap carriers remain in development.
On phase one of the Connect America Fund, we are pleased by
the FCC's recent decision to invest $485 million in rural
broadband. We thank you, Mr. Chairman, and others who were
engaged in this.
Phase two, which is the long-term program, is still on the
drawing board.
Uncertainty also exists for smaller rate-of-return
carriers. There are concerns that the reform order's quantile
regression analysis is not performing as intended. USTelecom
believes the Commission should expeditiously examine and
understand the real-world effects on rate-of-return companies.
Finally, it is time for a fresh look at the longstanding
regulatory structure for legacy telephone companies. The
biggest mismatch between regulatory approach and market
realities is the retail residential market. ILEC's are in a dog
fight for residential voice customers. Legacy regulations are
unfairly inflating costs for providers and limiting flexibility
for consumers.
USTelecom recently petitioned the FCC for regulatory
forbearance, seeking the elimination of outdated rules and
reporting requirements, some dating back to the telegraph era.
In May, the FCC agreed to drop certain requirements, but many
other unnecessary regulations remain.
A related issue is the ongoing shift to IP-based services.
All companies are deploying IP in their networks. There is an
important and timely dialogue underway at the FCC, but the IP
transition is in process. For each provider, the transition
will unfold in different ways at different times.
The association that I lead is comprised of companies
offering a variety of services, utilizing copper, fiber, coax,
and wireless platforms in widely diverse business environments.
There is no one-size-fits-all approach when it comes to issues
such as interconnection, competitive access, transport,
privacy, and public safety. It is critical that reforms be
judicious and grounded in facts. Where the competitive dynamics
are not fully understood, we will need to gather data.
In closing, the state of wireline is robust and dynamic.
USTelecom member companies are investing in the future, but
will require your attention and oversight to foster a vibrant,
competitive, and innovative communications market that serves
the public interest.
Thank you.
[The prepared statement of Mr. Gardner follows:]
Prepared Statement of Jeff Gardner, President and Chief Executive
Officer, Windstream Corporation on behalf of the United States Telecom
Association
Chairman Pryor, Ranking Member Wicker, members of the Subcommittee:
Thank you for the invitation to testify today on the state of wired
communications.
I am Jeff Gardner, President and CEO of Windstream, a FORTUNE 500
telecom provider with an innovative hybrid business model. Windstream
is a major rural ILEC and one of the Nation's top competitive carriers
as well. My testimony today is in my capacity as Chairman of the Board
of Directors of the United States Telecom Association (USTelecom).
USTelecom is the Nation's oldest and largest association for owners
of wired communications infrastructure--first, telephone companies and,
today, broadband providers. The association represents some of the
largest companies in the U.S., as well as some of the smallest
cooperatives and family-owned telecom providers in rural America. We
use a variety of technologies and platforms to provide voice, video,
and data to residential customers, small businesses, large
corporations, and governments at all levels.
This is a dynamic time for wired communications. Technology and
business models are transforming rapidly. I would like to make three
points, in particular, about where this industry stands and what lies
ahead:
(1) Wireline technologies comprise the most robust, secure, and
relied upon communications infrastructure in the Nation. Our
members provide service to wireline end-user customers of all
sizes, and also supply the veins and arteries of wireless
communications;
(2) The FCC is in the process of dramatically reshaping the
financial underpinnings of universal rural networks and while
this transition must succeed, many details remain unresolved;
(3) Communications technology is advancing at a rapid pace. This
puts pressure on the regulatory structure to keep up. It is
essential that we work together to update rules to a pro-
consumer, pro-competition framework for the information age.
The wireline network is the linchpin of the information age
I started my career in 1986 in the wireless industry and have
extensive experience in both wireless and wireline. I have witnessed
dramatic changes in wired telecommunications. Wires are less visible to
the consumer than they were 30 years ago, but in many ways they are
even more important. As a recent filing by the Department of Defense
noted, the wireline industry provides vital communications links for
military installations, the Nation's air traffic control system, and
storefront offices of the Social Security Administration.
Broadband, Wi-Fi, LTE, 4G, Ethernet, and so on all rely on robust
wired networks, and each day the demand for those networks grows. Last
year, wireline networks handled nearly 99 percent of U.S. video traffic
and 98.4 percent of total U.S. data traffic. The share of traffic
handled on mobile networks is increasing rapidly, but will only
represent about 5 percent of overall traffic in five years.
USTelecom's members are leading the way and investing billions each
year to advance this technological revolution. The wireline telecom
sector has invested $645 billion over the past decade to transform our
industry from one focused primarily on voice services to one leading
the way on data services. Every year is a race to keep pace with
astounding trends in data consumption--over the past 15 years, total
data traffic has grown at a compound annual rate of 81 percent.
We also are essential partners in the wireless revolution,
connecting cell towers to the rest of the network--most often with
robust fiber optic cable--as well as offering Internet backbone and
middle mile connections. In addition, for all wireless networks and
technologies, one of the most important traffic management tools is
offloading traffic onto landline networks as quickly as possible.
Often, this means handing off traffic to Wi-Fi networks supported by
wireline providers. One recent analysis found that Wi-Fi already
handles more than two-thirds of the data for LTE subscribers and that
its share is expanding. When consumers use tablets and smart phones at
home, at a hotel, or in a shop, chances are they are connecting through
a wired Wi-Fi connection.
Some reporters and analysts have speculated about the extinction of
wireline companies. But as Mark Twain might have said, ``rumors of our
death have been greatly exaggerated.'' In fact, for Windstream, our
wireline operations are growing, not contracting. Our employee count in
Arkansas has grown 17 percent since 2010, and the company entered the
FORTUNE 500 list for the first time this year. As a whole, the wireline
industry has been investing on a massive scale to keep pace with
changes in technology and consumer demand. For several years in a row,
even through the toughest recessionary times in generations, our
industry has invested more than $65 billion annually in broadband and
other communications infrastructure. Wireline remains a major employer
of high-skill workers. Excluding cable, the wireline industry employs
about 400,000 American workers and pays wages approximately 45 percent
above the national average.
Future investment in rural broadband networks is at critical point
In rural America, as in the rest of the country, wired networks
remain essential to all communications--arguably more essential than
ever. When you're speeding along a rural interstate, it takes more than
air and a smartphone to make a call or send an e-mail. Your device
links to a tower or antenna that is tied immediately into a wired
network--maybe the same overhead cable strung down the side of your
highway. And, of course, many rural consumers live far from the
Interstate highways, in places where wireless service is not so
prevalent or reliable. The wired network--increasingly via broadband--
remains the tether for the Nation's rural citizens to family, friends,
and business interests around the state, country and world.
In short, wired networks remain essential infrastructure for
ensuring that communication services for rural consumers are comparable
to those in urban areas in quality and affordability--words that are
not mere slogans but rather statutory touchstones and directives to the
FCC. Thus, you can appreciate the stakes around universal service and
intercarrier compensation reform.
The inherent and long-standing challenge in rural America has been
to deploy, operate, and maintain expensive assets in areas with low
population density. As a general principle, network costs are lower per
subscriber in more densely populated areas but higher in rural areas,
while total revenue potential decreases with lower density. That's why
we have universal service programs and intercarrier compensation
systems.
``USF/ICC reform'' has become shorthand for a top-to-bottom
overhaul of rural communications programs, starting with the Universal
Service Fund itself, and also including the Federal and state
components of intercarrier compensation, as well as state USF programs.
The FCC's reform order in 2011 mandated specific and sizable reductions
in intercarrier compensation and proposed a fundamental overhaul of
universal service for high-cost areas. Nobody has attempted to score
these changes in terms of their overall dollar impact, but at a high-
level the math is simple and challenging. On one side of the ledger,
intercarrier compensation has been slashed by billions of dollars,
while Federal universal service funding remains at roughly the same
level as before. On the other side of the ledger, the FCC's goals now
are to sustain ubiquitous voice service while also, simultaneously,
substantially increasing broadband access in rural America.
We understand the need for reform and helped get the comprehensive
reform order across the finish line in 2011, but the job is far from
complete. We were pleased by the FCC's decision in May to invest $485
million in rural broadband expansion via phase 1 of the Connect America
Fund. Mr. Chairman, you and several others on the Committee played
important roles in that decision, and we thank you. Still, unresolved
aspects of reform, coupled with slashing of intercarrier compensation,
have created troublesome uncertainty for ``price cap'' carriers and the
consumers they serve. For the future, there are plans to estimate the
price cap carriers' costs of providing service to certain rural areas,
then offer funding above a high cost threshold, along with a set of
performance requirements, to serve the area. There has been an unspoken
assumption that the proffered funding will be reasonable to the
provider, but also attractive to policymakers who are trying to cover
the Nation with ubiquitous voice and broadband on a constrained budget.
We are hopeful that these dual objectives soon will be fulfilled, and
that the strain from existing uncertainty will be lessened. But we need
the FCC to continue in a transparent and deliberate fashion as it moves
forward with the next phase of reform, and ask the Committee to keep a
watchful eye in its oversight role.
Likewise, the reforms for smaller ``rate-of-return'' companies have
created uncertainty for those providers.
One way to understand the situation for rate-of-return companies
and cooperatives is to look at the broadband loan programs run by the
Rural Utilities Service at the Department of Agriculture. Borrowing
from RUS has dropped to 37 percent of the money appropriated by
Congress in the last Fiscal Year. Meanwhile, private lenders have
withdrawn from the market altogether. Rob West of CoBank, a major
lender to small carriers, estimates that ``many small rural wireline
providers have [lost] or will lose 50 to 100 percent of their capacity
to access borrowed capital.'' The bottom line is reduced capital
investment for broadband service in rate-of-return areas at the very
time policymakers--from the President to members of the Senate and
House to key Federal agency appointees to state commissioners--are
calling for bringing broadband to unserved communities.
There are concerns that the reform order's ``Quantile Regression
Analysis'' (QRA) approach to determining universal service support to
rural rate-of-return companies is not performing as intended. To better
assess the impact of the QRA on rate-of-return companies, USTelecom
believes the Commission should expeditiously examine and understand the
real world effects of USF reform on rate-of-return companies and
determine how to ensure that, in operation, it meets the Communications
Act's requirement that rural Americans have communications services
comparable in quality and affordability to those in urban areas.
A pro-consumer, pro-competitive framework for the information age
Finally, let us consider the state of regulation for wireline
communications. The regulatory structure for legacy telephone companies
is the oldest, most comprehensive, and least flexible in all of
communications.
The biggest mismatch between regulatory approach and current market
realities is in the retail residential market. Recent data from the
FCC, as well as from the Centers for Disease Control, indicate that by
year's end, about 25 percent of U.S. households will have traditional
voice service from incumbent local exchange carriers (ILECs). ILECs are
no longer the dominant providers of retail residential voice service,
and Federal and state regulators must respond accordingly.
In fact, ILECs are in a dogfight for residential voice customers,
and legacy regulations are unfairly inflating costs and limiting
flexibility for consumers. Google recently announced that in Kansas
City, where it has deployed a new fiber-to-the-home network, it will
not offer voice service because of the regulatory burden. These
regulations are holding back competition in the entire residential
voice market.
USTelecom has attempted to address these concerns in several ways.
Recently, USTelecom petitioned the FCC for regulatory forbearance. The
association sought the elimination of 17 categories of rules and
reporting requirements that no longer have relevance in today's
marketplace. Some of these rules dated back to the telegraph era, and
others are rooted in presumptions that ILECs remain monopoly providers
of residential voice service. For instance, Windstream was required to
offer long distance through a separate corporate entity from our local
exchange services. This and other requirements were dropped in the
FCC's decision, released in May. But many other archaic and unnecessary
regulations remain on the books, imposing costly burdens on our member
companies and forcing us to fight with one hand tied behind our backs
to retain old customers or to gain new ones in the face of obvious
market evidence demonstrating that competition in the residential voice
market is thriving.
Closely related is the question of how the ongoing shift to IP-
based services should affect regulation. All companies are deploying IP
in their networks and appreciate the importance of this conversation,
which is enhanced by the creation of an FCC task force on the issue.
But this transition is a process, and will unfold in different ways and
at different times for each provider.
As I noted at the beginning of my testimony, technological changes
and the demands of consumers and businesses for new solutions to their
communications needs have brought real pressure to bear on our
regulatory structures. This is a challenge for regulators, but also for
us, as an industry. Increasingly, there is no ``one size fits all''
approach. My company serves both urban and rural markets, it serves
both residential consumers and business customers. In some areas it
operates as an ILEC, in some as a CLEC--indeed, as one of the Nation's
largest and most successful CLECs. Likewise, the association that I
lead is comprised of companies offering a variety of services--
utilizing copper, fiber, coaxial and wireless platforms--in widely
diverse business environments. So, when it comes to issues such as
interconnection, competitive access, transport, privacy, and public
safety, we are keenly aware of the need for public policy to balance
regulatory treatment among competing platforms, to avoid disincenting
wireline investment, and, at the same time, avoid competitive harm,
especially during this transition period that we are in, a transition
that is technology-driven. Therefore, the goal of our association, and
my goal as Chairman, is one that I would hope is shared by this
Committee: It is to forge a consensus on how we can restructure
regulatory approaches in a way that provides consumers and businesses
with all the benefits of the Information Age. In areas where the
competitive or economic dynamics are not fully understood or where
there are gaps in our knowledge, we will need to gather and analyze the
right data to understand the specifics of the situation. Modernizing
our regulatory structure and planning for a smooth transition to an IP
world are essential to the health of the wireline industry and all the
benefits that it brings our nation, and it is critical that reforms be
judicious and grounded in fact-based assessment of the modern
communications marketplace.
In closing, my view is that the state of wireline is robust and
dynamic. After decades of change, the wireline infrastructure remains
the durable and essential core for all communications. Cloud computing
promises real benefits for businesses and consumers, but only if a
robust wireline industry can supply the broadband connections on which
cloud computing depends. Similarly, advanced healthcare applications,
gigabit connections linking research universities and gigabit
communities all will depend on robust wireline infrastructure. If we
are to reach the goals established by President Obama in his ConnectEd
initiative to connect our Nation's schools to the Internet at gigabit
speeds and the FCC's goals for a reformed E-Rate program, our country
absolutely needs a healthy and robust wireline industry continuing to
invest billions in broadband infrastructure.
USTelecom member companies believe the future is bright and are
investing accordingly, but we will require your attention and oversight
to protect the public interest in strong communication links for all
Americans, including in rural areas, and to foster a vibrant and
innovative market for communications services.
Senator Pryor. Thank you.
Ms. Bloomfield?
STATEMENT OF SHIRLEY BLOOMFIELD, CHIEF EXECUTIVE OFFICER,
NTCA--THE RURAL BROADBAND ASSOCIATION
Ms. Bloomfield. Mr. Chairman and Senators, thank you from
this Midwestern woman for the opportunity to participate in
today's hearing.
[Laughter.]
Ms. Bloomfield. NTCA--The Rural Broadband Association
represents nearly 900 small rural telecommunications providers
everywhere from the North Slope of Alaska to the Everglades in
Florida. Our members hold a very deep commitment to the
communities that they serve because they live there, and these
small businesses create jobs, they fuel the economy, they
connect the world to rural America, and frankly, they also
connect the wireless devices that we all use. But these
companies need sufficient Universal Service support and
regulatory certainty to be able to operate in these hard-to-
serve areas.
When we talk about Universal Service, we are really talking
about the foundation of a universal economy and a better
connected Nation. Federal law and cost recovery mechanisms,
such as USF and intercarrier compensation, have long ensured
that all Americans can participate in our increasingly
interconnected world, leaving no one behind.
Of course, these programs do need to be reviewed and to
ensure that they remain applicable and sustainable. But,
unfortunately, rather than building upon what has actually
worked, the USF and ICC reforms have generated paralyzing
regulatory uncertainty and a lost year broadband deployment to
the detriment of rural consumers and the small businesses that
they serve.
For several years, we have made every attempt to work with
the FCC to create a sustainable and predictable path forward.
We proposed a number of very common sense solutions and
industry agreements to responsibly transition these cost
recovery mechanisms from voice to a broadband world. My written
testimony outlines some of these thoughts, but I want to hit
some of the highlights here with you all today.
First, we need transparency. We need accuracy and
predictability in the USF system. The FCC has adopted a new
statistical model which is called ``the quantile regression
analysis.'' It compiles 2-year-old data from hundreds of
Universal Service recipients and then runs the data through a
very complex formula to arrive at an annual cap on each
carrier's USF support, and that cap is recalibrated every year.
The approach is inconsistent with the law that mandates that
USF be predictable. As such, the QRA should be eliminated or
perhaps used only as a trigger to flag a given carrier for
additional review. At the very least, the cap should be phased
in over a longer period of time until the QRA issues are
resolved.
Second, the FCC should follow through on some earlier
promises to create a clear and simple waiver process. The FCC
touted the waiver process as a safety valve for situations
where the reforms were having the effect of undermining
Universal Service rather than promoting it. But it has been
anything but simple, affordable, or successful to date.
Third, the FCC should not proceed with additional cuts,
caps, or constraints on USF and intercarrier cost recovery
until it has fully evaluated the impact of what has already
taken place. NTCA really appreciates the recent call that the
Senate has made for a GAO report that will allow us to study
the impacts of these reforms, and we believe that having the
FCC wait to find out what comes out from those findings would
be very critical.
Fourth but not last, the FCC must adopt a sufficient and
predictable Connect America Fund for small carriers to fulfill
its policy objectives. The irony to date is the FCC has not
created a Connect America Fund for rural carriers and has only
actually cut legacy USF and intercarrier comp programs, which
has led to higher rates for service and less investment.
We talk a lot about the IP transition, and rural network
operators have really been at the forefront of this evolution,
never losing sight of some really core principles that I think
Congress really cares about as well, and those are principles
that compel consumer protection, the promotion of competition,
public safety, and Universal Service.
NTCA filed an IP evolution petition that highlights that as
we migrate through this area, which is going to be very
complicated, consumers and businesses will only benefit if the
core objectives remain our collective guideposts. We believe
the best way forward is to work from a well known regulatory
framework and then surgically identify what rules need to be
retained, what needs to be improved, what can be enhanced,
modified, or eliminated that is consistent with those
objectives.
And there is probably no more pertinent example of the need
for clear rules of the road than the call completion epidemic.
Rural consumers are losing faith in the reliability of critical
communication networks and the ability of policymakers to help
manage them. This widespread problem of calls simply not
terminating into rural markets is harming consumers, public
safety, and the viability of businesses that are located in
rural America. Rural consumers beyond frustrated and we are
greatly appreciative of the help that the Senate has shown so
far.
Unfortunately, there has been very little regulatory or
economic consequence for such failures to date. Congress has
produced letters. You have supported a resolution, report
language, and the FCC has taken some steps to investigate this.
But we are begging for a more punitive message that this
conduct is unlawful and that those responsible for the problem
will be held accountable.
So in conclusion, NTCA members want to continue to build
upon the success story of rural broadband in their difficult-
to-serve markets. Also access to affordable content and the
ability to compete for spectrum in the wireless space are also
critical issues.
We are looking forward to continuing our work with Congress
and the FCC to get it right. Our Nation's economic success, our
access to natural resources, energy, and food production all
depend on our getting it right.
Thank you very much.
[The prepared statement of Ms. Bloomfield follows:]
Prepared Statement of Shirley Bloomfield, Chief Executive Officer,
NTCA--The Rural Broadband Association
Chairman Pryor, Ranking Member Wicker, thank you for the invitation
to testify at the ``State of Wireline'' hearing. I am Chief Executive
Officer of NTCA-The Rural Broadband Association which represents nearly
900 small, rural telecommunications providers across the country from
the North Slope of Alaska to the Everglades National Park in Florida.
These companies serve areas long ago left behind by larger providers
because the markets were too high-cost--too sparsely populated, too far
from larger towns and cities, and/or just too challenging in terms of
topography or terrain. As community-based operators, our members hold a
deep commitment to their consumers. These small businesses create jobs,
fuel the economy, and connect rural Americans to the world. I was last
before this committee days before the Federal Communications Commission
(FCC) released its Universal Service Transformation order. I am
grateful for the opportunity to address where the reforms have led, for
better and for worse. I will review where rural carriers stand after
Universal Service Fund (USF) and intercarrier compensation (ICC)
reform, discuss the challenges and opportunities presented by
technological evolution, and address lingering concerns regarding
access to content and meaningful wireless competition.
Universal Service Reform
As our Nation has understood for more than a century, and as
Congress recognized by law in 1996, when we speak of universal service,
we are really talking about the foundation of a universal economy and a
better connected nation. The USF program helps to ensure that all
American citizens and businesses, regardless of who they are or where
they live, have a reasonable opportunity to participate in our
increasingly interconnected and online world. The Hudson Institute, for
example, has found that investment in rural telecommunications delivers
real payback for our entire nation, generating $14.5 billion annually
in economic activity--$9.6 billion of which accrued to the benefit of
urban areas where equipment manufacturers, contractors, and other
service providers reside.\1\ As the foundation of telecom investment
and operations in many hard-to-serve, high-cost areas, and the solution
that promotes affordable rates to facilitate adoption by rural
consumers, the USF program has therefore been a terrific success story
for both those rural areas and for our nation as a whole.
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\1\ The Hudson Institute study is available through the following
link: http://www.hudson.org/files/publications/RuralTelecomOct2011.pdf.
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Now, all stakeholders agreed that the USF program needed
modernization and common sense measures to adapt to a broadband world
and to make it more sustainable over time. Unfortunately, rather than
building upon what had worked to update the USF program for a broadband
age, the reforms put into place by the FCC in 2011 have caused a
significant amount of regulatory uncertainty, have frustrated access to
capital for network deployment, and have resulted in what might be
called at least one ``lost year'' in broadband deployment by small
rural carriers with the threat of more to follow. Indeed, several
surveys and other data points confirm that broadband investment by
small rural carriers has all but ground to a halt in the wake of the
2011 reforms. For example, a recent survey conducted by NTCA--The Rural
Broadband Association \2\ underscores just how real the impacts have
been. Out of 185 small carrier respondents, 127 indicated they have
either postponed or cancelled plans to upgrade their network
infrastructure due to lingering regulatory uncertainty. One-hundred and
one of these respondents indicated that the combined value of the
projects put on hold equaled more than $492 million.
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\2\ This survey can be found through the following link: http://
www.ntca.org/2013-press-releases/survey-shows-rural-telecommunications-
carriers-postponing-delaying-network-upgrades-because-of-regulatory-
uncertainty.html.
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A publicly filed summary of a meeting between U.S. Department of
Agriculture (USDA) Secretary Thomas Vilsack and then-FCC Chairman
Julius Genachowski further highlights how the 2011 USF changes have
chilled network investment.\3\ Even as that filing explained how the
economic stability of rural areas depends on the availability of
resilient robust communications infrastructure financed in significant
part by USDA programs, the letter also reported that, in Fiscal Year
2012, carriers were able to draw down only 37 percent of the telecom
infrastructure financing made available by USDA. USDA expressly noted
that current and prospective borrowers of the program cited uncertainty
arising out of the FCC's changes in declining to move forward with
planned construction efforts, and the threat of more changes to come
only exacerbates such concerns. CoBank, one of the few other lenders to
small rural carriers for network deployment capital, has also
apparently severely cut back its lending in this space,\4\ and the bank
recently made a filing at the FCC explaining how regulatory uncertainty
surrounding the USF program was challenging its ability to advance
capital in support of rural telecom investment.\5\
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\3\ See Ex Parte letter filed on 2/15/13 by Acting Administrator
Padalino which can be accessed here: http://apps.fcc.gov/ecfs/document/
view?id=7022122079
\4\ See ``State USF White Paper: New Rural Investment Challenges''
by Michael J. Balhoff and Bradley P. Williams, June 2013, accessed
here: http://www.balhoffrowe.com/pdf/BW%20State%
20USF%20White%20Paper%20June%202013.pdf.
\5\ See Comments of CoBank filed June 21, 2013, WC Docket No. 10-
90, pages 4-5.
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It is not as if demand by carriers and consumers is not there--to
the contrary, it is quite clear that consumers across the country are
seeking increased levels of broadband, and as always, rural telcos are
willing and eager to serve them. Moreover, our companies only serve
these rural markets, meaning that it is not as if they would rather
divert resources to invest and provide cutting-edge services only in
larger addressable markets. Similarly, it is not as if lenders are
disinterested in the space--to the contrary, USDA and firms like CoBank
and the Rural Telephone Finance Cooperative have long stood ready to
help with the deployment of advanced communications networks in rural
areas. Rather, the concerns that have reduced loan demand and
availability arise specifically out of whether regulatory changes now
being implemented--and the threat of further changes perhaps still to
come--will preclude the payback of loans taken out to advance
deployment of broadband-capable networks to the benefit of consumers
and businesses in rural areas.
In the face of this presumably unintended uncertainty, NTCA has
made every effort to work with the FCC and our member companies to
create a more sustainable and predictable path for USF reform. We have
devoted hundreds of hours to meetings with the FCC, other policymakers,
and stakeholders aimed at identifying a better path forward that
creates regulatory certainty and builds a broadband future for rural
consumers even while working within broader reform objectives. We have
proposed a number of commonsense solutions to facilitate the transition
from a legacy USF regime to a true and effective ``Connect America
Fund'' for all rural areas, while sustaining important accountability
measures and recognizing the need to promote the fiscal sustainability
of the program. Specifically, NTCA has suggested time and again over
the last eighteen months four essential, straightforward steps that can
and must be taken to overcome the current regulatory uncertainty and to
develop a sufficient, predictable, and sustainable USF program for a
broadband era. We have made some progress on some of these steps, but
we also have a good, long way to go--and we remain hopeful that the
FCC, or Congress to the extent necessary, will help in achieving these
four essential objectives.
First, there is a need for greater transparency, accuracy, and
predictability in the USF system, post-reform. As one example of
several retroactive cuts on support, the FCC's new ``Quantile
Regression Analysis'' (or ``QRA'') model to cap USF support for small
carriers has created rampant uncertainty in the rural telecom
marketplace. For those unfamiliar with the QRA model and its caps, I
would urge you to take a look at how this incredibly complex system
operates. If you thought the old ICC system with access charges was
complicated, the QRA effectively requires a degree in statistics to
understand.
In short, the QRA model takes data from the investments and
operations of hundreds of small carriers in the United States from two
years in the past and then, on the basis of over a dozen different
variables, runs through a formula that creates caps to govern each
carrier's USF support for a given year. This system is then re-run each
year and new caps are generated, always based upon what hundreds of
other carriers did years before. NTCA and others have filed hundreds of
pages over the past eighteen months showing how the model's complexity
and its opaque nature are creating regulatory uncertainty. NTCA and
others have also made many filings showing that errors in the models
run the real risk of creating misplaced or unjustified caps, and it has
been clear at least in early 2012 that the service area maps included
in the QRA model are not accurate. Despite these obvious flaws, this
model is still being used to generate caps every year to limit USF
support, and no carrier can know whether its investments or operations
today might trip the caps two years from now. This is an unsustainable
approach to universal service and it runs directly contrary to the
congressional mandate that USF be predictable; the errors in capturing
actual costs used and useful in providing universal service also mean
the QRA model does not satisfy the congressional mandate that USF be
sufficient.
NTCA and many other stakeholders therefore believe the QRA-based
caps should be eliminated altogether and replaced with other mechanisms
that would provide more clear and transparent limits on support. We
proposed such a mechanism in 2011, and we continue to believe that
proposal would provide greater visibility into how any limits would
apply to prospective investments. Yet at the same time, since the QRA-
based caps are already in effect, we have worked in good faith with the
FCC to at least try to improve them. The FCC took some welcome interim
steps last year to cushion the impact of the caps for 2013, and it also
directed the commission staff to take further steps to improve the caps
predictability. But we are now mid-way through 2013, and we have no
better idea than we did on January 1 of this year what will be done to
actually make that happen. If the model and resulting caps will not be
eliminated or cannot be substantially improved very soon, the caps
should then be used only as a ``trigger'' that flags a given carrier
for additional review, rather than serving as an automatic disqualifier
of recovery of certain costs. Alternatively, if they will continue to
apply as true caps, their impacts should at least be phased-in over a
longer period of time as the problems in the system are further
analyzed and hopefully resolved. But in the absence of either immediate
steps to address the uncertainty caused by the ever-shifting QRA caps
or some other relief, we run the risk of 2014 becoming yet another
``lost year'' of rural broadband investment.
Second, the FCC should follow through with the promises made in its
Fifth Order of Reconsideration to create a clear, simple process for
carriers who need waivers from the FCC reforms. The FCC has touted the
waiver process as an important safety valve where the reforms are
having the effect of undermining, rather than promoting, universal
service. The Fifth Order on Reconsideration attempted to tie the
standards for a waiver more faithfully back to the universal service
provisions in the statute, and we were hopeful in the wake of that
decision that better progress might be made on this safety valve
mechanism. Unfortunately, we continue to see waivers take incredibly
long periods of time to address, cost carriers large amounts of money
to seek, and, to date, we have seen little, if any, improvement in the
process. If the waiver process is to be cited as the last line of
defense for universal service, it needs improvement.
Third, consistent with its commitment to a ``data-driven''
approach, the FCC should not proceed with additional cuts, caps, or
constraints on USF support and ICC cost recovery until it has evaluated
the impact of changes already adopted and just now being implemented on
consumers and core statutory objectives. A number of the reforms
contemplate rate increases on rural consumers and are having the
presumably unintended effect of slowing down broadband investment as
already noted. Before undertaking additional changes that may only
exacerbate these concerns and perpetuate regulatory uncertainty, good
policymaking would dictate taking stock of the effects of the existing
reforms on broadband deployment, broadband adoption, and end-user rates
through a data-driven analysis. For example, we appreciate the interest
of many Members of Congress in asking the Government Accountability
Office to assess such effects starting later this year, and reviewing
such data over the course of several years as the reforms already
adopted continue to be implemented will be essential in determining
what to do next--and, just as importantly, in determining whether any
``course corrections'' are needed for reforms already adopted.
Fourth, but hardly last in importance, the FCC needs to define a
path forward for a sustainable broadband future for consumers in areas
served by smaller carriers. The FCC created a Connect America Fund for
larger carriers that will support broadband-capable networks, but, as
discussed earlier, it has not yet taken such steps for consumers in
areas served by smaller companies. Instead, it left in place legacy USF
programs for smaller carriers with changes that reflect, on the whole,
reductions in USF and ICC revenues. And the irony is that this legacy
system, while it has worked well and should form the foundation of
informed next steps, still needs updating to serve the objective of
universal service in a broadband-enabled world. Today, if the customer
of a small rural carrier wants to stop buying plain old telephone
service and just wants broadband service alone, that customer's
broadband rates would increase because the legacy rules eliminate USF
support on such a line. It is essential that the FCC update its USF
mechanisms to avoid this result--it can and should create a targeted
and tailored Connect America Fund for areas served by smaller rural
carriers by providing sufficient support for the networks (both last-
mile and transport) that enable the availability of advanced services
of all kind in rural markets, regardless of whether each customer
chooses to buy just plain old telephone service on those networks. This
does not require massive changes or substantial reworking of the
existing mechanisms along the lines of the Connect America Fund that is
still in its second year of development for larger carriers. Instead,
such a program can build upon the existing mechanism, with technical
fixes to the existing rules helping to achieve the FCC's modernization
objectives and serve the interests of rural consumers and businesses.
IP Technology Evolution
There has been a great deal of talk in telecom circles recently
about the ``IP transition.'' It is true that an evolution of network
technologies is important both to provide increasingly attractive
services to consumers and to enable carriers to achieve greater
functionality and efficiency in their networks. But this is not some
``switch to be flipped,'' or ``flash-cut'' in moving from one type of
network to another. To the contrary, while this evolution promises
exciting things for our nation, it is not all that different in concept
from when party-line services in rural areas were eliminated or when
analog switches were replaced by digital switches. In fact, the IP
evolution is already upon us--it is occurring today as communications
networks and consumer demands adapt to new technologies and services.
Rural network operators have been at forefront of this evolution
for years. Small rural carriers are no longer interested in just being
telephone companies. They have been and remain innovators who have been
making every effort to deploy advanced networks that respond to
consumers and businesses for cutting-edge services. A recent NTCA
survey found that our entire membership now delivers broadband.\6\
Another study a few years ago by the National Exchange Carrier
Association (NECA) indicated that smaller rural carriers were already
delivering at least basic levels of broadband to 92 percent of their
customers as of 2010, and more than half of them had already deployed
or had plans to deploy next-generation, IP-enabled switching and
routing technology in place of legacy telephone switches within the
next year.\7\
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\6\ This survey can be found through the following link: http://
www.ntca.org/images/stories/Documents/Advocacy/SurveyReports/
2012ntcabroadbandsurveyreport.pdf.
\7\ This survey can be found through the following link: https://
www.neca.org/cms400min/NECA_Templates/PublicInterior.aspx?id=100.
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NTCA and its members have been considering for some time how best
to promote and sustain this evolution to next-generation network
technologies. Above all else, we believe that core statutory principles
relating to protection of consumers, promotion of competition, and
assurance of universal service apply by law to all communications,
regardless of the technology used within underlying networks. As we
migrate to newer network technologies and the services they enable,
this backdrop must not be lost. Instead, consumers and businesses will
only benefit if these principles in the statute remain our collective
guidepost.
To help facilitate such a dialogue in policy circles and to shine a
light on the need for thoughtful consideration of these principles in
connection with the IP evolution, NTCA filed a petition at the FCC in
late 2012. In that petition, we suggested that policymakers can best
serve these important public policy objectives if they do not prejudge
the value or inapplicability of specific rules or a broader regulatory
framework. Specifically, NTCA contended that policymakers should not
dismantle the current regulatory framework simply because underlying
network technologies shift, while at the same time urging the FCC to
also avoid leaving existing rules in place merely because they once
made sense in an era when consumer preferences, technologies, and
competition were different. We therefore urged the FCC to help promote
and sustain the ongoing IP evolution by looking at existing rules to
see whether each rule still has value in serving the statutory goals of
consumer protection, promotion of competition, and universal service.
Finally, we noted that by starting from a well-known regulatory
framework and then looking to improve, enhance, modify, or eliminate
parts of it based upon a surgical review, this would give greater
certainty to consumers, investors, lenders, and the industry than
either a regulatory vacuum or maintaining the status quo.
NTCA's petition also focused on a number of incentive-based
measures which would help accelerate the technology transition. The
first measure is one I have already mentioned--cleaning up legacy rules
that compel consumers of small rural carriers to take ``plain old
telephone service'' in order to obtain affordable broadband services in
rural areas. The FCC resolved this issue for larger carriers serving
rural areas in deciding to set up a Connect America Fund for them, and
it has finally started moving forward on this issue for smaller
carriers by seeking comments on a concept proposed by NTCA and other
rural associations. In fact, the record before the FCC shows
overwhelming support for our proposal. It is therefore our hope that
the FCC will move to make the technical rule fixes needed to address
this issue in the near future.
Another measure identified in the NTCA IP Evolution petition was
the establishment of a sufficient ``middle-mile'' USF support for rural
carriers. Here again, the FCC is in the process of resolving this issue
for larger carriers as part of their ``Connect America Fund,'' but
there is no Connect America Fund program yet for smaller companies
serving exclusively rural areas. One of the most costly parts of
providing broadband service to rural consumers is the so-called middle
mile network required to connect rural consumers to the Internet on-
ramps located in distant cities. The only way to ensure broadband
service will be robust and affordable for rural consumers and
businesses over time is to make sure sufficient middle mile support
will be available for high-cost rural areas.
Finally, the NTCA IP Evolution petition noted that the FCC has yet
to address how carriers can interconnect with one another in an IP-
enabled world. Even if IP networks are more efficient, there are still
real and substantial network costs associated with the underlying
transport of data from point A to point Z. It is not as if all of that
data floats on free ``pixie dust''--there are real networks with real
construction and operating costs that must be designed to handle the
increasing amounts of traffic we all see on our networks, regardless of
whether that data is IP or otherwise. Clear ``rules of the road'' for
interconnection in an IP-enabled world will be essential to ensuring
that certain consumers and businesses are not left behind, and to
ensure the seamless transmittal of data in accordance with customer
expectations
Call Completion
There is perhaps no more pertinent example of why clear ``rules of
the road'' are important than the call completion epidemic that
continues to plague rural areas. After more than two years since this
issue was first brought to the attention of regulators, rural consumers
and the carriers that serve them are losing faith in the reliability of
critical communications networks and the ability of regulators to help
manage them. Increasingly over the past few years, calls do not get
through to rural areas--or when they do, they often have quality
problems. This widespread problem is seriously and negatively affecting
not only consumers, but also public safety and the viability of
businesses located in rural areas.
The problem often appears to stem from choices made by originating
long distance carriers to use the cheapest possible route to transmit
calls to rural areas--with the apparent sense that, if the calls should
happen not to get there because a contractor in the middle (often
called a ``least-cost router'' in the telecom industry) fails to
deliver the call, there is little regulatory or economic consequence
(if any) for such failures. The solution to this problem would require
the originating long distance carriers to better police their service
quality and the contractors they use. Greater transparency into the
least-cost routing market would also help, but unfortunately scant
information is available regarding who provides such services and when
and where they do so.
This is not to say that the FCC has done nothing to address this--
we just need the agency to do more in terms of enforcement, and do so
quickly. Congress has sent a number of letters to the FCC already
urging quick action. The FCC released a Declaratory Ruling in February
2012 putting originating long distance carriers on notice that they are
liable for call failures, even where the cause of the call failure is
an underlying contractor or least-cost router in the middle. Then just
last week the FCC reiterated this directive in a sternly worded
``Enforcement Advisory'' giving startling examples of how cavalierly
some carriers and least-cost routers have taken enforcement efforts to
date. The FCC also released a Notice of Proposed Rulemaking earlier
this year which would force carriers to retain information so that the
scope of the problem could be ascertained on a company-by-company basis
and enforcement action could be pursued. While having access to such
data would be an important step forward, complaints of calls failing to
reach rural America continue, and we are begging the FCC to do more now
to send a message that such conduct is unlawful.
The FCC did take action earlier this year, announcing a ``Consent
Decree'' with Level 3 Communications, in which the carrier paid a
``voluntary contribution,'' to monitor its call completion performance,
and to pay additional amounts if its performance failed to satisfy
certain metrics. But more enforcement is needed, as a one-time
enforcement action two years after the problem was first brought to
light and when unknown numbers of calls are still failing on unknown
number of networks across America won't do the job. As one state
regulator put it, it is time for the FCC to ``drop the hammer''--in
fact, it's more than time to do just that.
Video Issues
Small carriers have been providing video service to their consumers
for many years. In limited areas this may be done in direct competition
with large cable companies, enhancing consumer choice. In more remote
places where over-the-air signals may be weak and unreliable and/or the
small carrier is the only local provider available, this is a critical
service to customers who need access to local news and weather reports.
Video provision is also a broadband issue, as small carriers
frequently use the same infrastructure to deliver both video and
broadband services. In fact, the FCC has found that these services are
intrinsically linked.\8\ When small carriers are able to offer video
and broadband services together, data shows that broadband adoption
goes up 24 percent,\9\ which makes it more feasible to invest in
broadband networks. However, small carriers' ability to deliver video
and broadband services are impeded by outdated program access rules
that make the business case increasingly difficult even for the
Nation's largest cable companies.
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\8\ MB Docket No. 05-311, 22 FCC Rcd 5101, 5132-33, 62 (2007).
\9\ See NECA comments, GN Docket Nos. 09-47, 09-51, 09-137 (filed
Dec. 7, 2009), p. 6.
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Retransmission consent rules that are now over twenty years old--
and thus reflect a very different video marketplace--give programmers a
stranglehold over video content and prevent small providers from
negotiating market-based rates for programming. Increasingly, customers
are facing blackouts of channels due to programmers' ``take it or leave
it'' tactics, which are technically prohibited but occur frequently. In
addition, evidence suggests that small and medium video providers pay
up to twice the rates that large companies do for the same programming.
And some types of content that is necessary for a viable service
offering, notably sports programming, may be subject to even higher
rates if it is available at all.
In addition, recent years have seen a spike in instances where
separately owned stations within the same market coordinate their
retransmission consent negotiations. Such ``coordination'' has enabled
separately-owned broadcasters to command retransmission consent prices
that are 21 percent to 161 percent higher than each station negotiating
on its own behalf could command on its own.\10\ These high rates are in
turn passed on to consumers and decrease competition in the local
television market.
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\10\ See ACA comments, MB Docket Nos. 09-182 and 07-294 (fil. Mar.
5, 2012), p. 9
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Customers must also pay ever-higher prices for video programming
they do not even want because programmers force providers to buy
multiple unwanted channels, and place them in basic service tiers, in
order to have access to channels that customers demand. This ``forced
tying'' prevents small providers from offering more affordable packages
of channels, and is raising prices to unsustainable levels.
Technology and the video marketplace have changed drastically since
the current program access regime was enacted over 20 years ago. Just
as we are talking about the need to re-evaluate rules in the context of
an IP evolution in communications networks, it is far past time for
policy makers to reform these outdated rules and encourage, rather than
impede, video competition and broadband deployment.
Wireless Issues
Rural consumers require access to a strong and reliable wireless
network and rural carriers are attempting to meet that demand despite
monumental challenges. Essential to a robust wireless market is an
interconnected wireline network. The demand for high capacity fixed
wireline broadband to support wireless networks will only increase as
usage of handheld devices grows. But rural carriers must also know they
will be able to fully complete in the wireless marketplace before they
will attempt to continue to expand their networks through effective use
of spectrum. A lack of interoperability across the 700 MHz spectrum may
lead to spectrum lying fallow or islands of rural service with devices
that cannot be used outside of a customer's home service area. A lack
of fair and reasonable data roaming agreements with large carriers
compounds the problem, creating barriers even when spectrum is
interoperable. Furthermore, rural carriers often lack access to the
equipment and handsets that are available to larger carriers. At a time
when carriers are trying to diversify and make good use of spectrum
assets, the lack once again of clear ``rules of the road'' leaves
smaller operators largely at the mercy of larger carriers.
Finally, as the FCC moves forward with the upcoming 600 MHz auction
plan it is essential that the agency allow meaningful participation by
small rural and regional carriers. Most importantly, the FCC should
allow carriers to bid on small license areas which will promote
competition throughout the country.
Conclusion
NTCA's membership wants to continue and build upon the success
story of rural broadband deployment in their hard-to-serve territories,
but they will only be able to do so once regulatory certainty is
returned to their operations and if there is sufficient and predictable
USF support that has been reoriented for a broadband world. We look
forward to continuing to work with Congress and the FCC to get it
right. Our nation's economic success--its access to natural resources,
energy production, and food production, for example--depends on getting
this right.
Senator Pryor. Thank you.
Mr. James?
STATEMENT OF JERRY JAMES, CEO, COMPTEL
Mr. James. Chairman Pryor, Ranking Member Wicker, and the
members of the Subcommittee, on behalf of the 200-plus COMPTEL
members, I want to thank you for the opportunity to appear
today and talk about the status of the wireline communications
industry.
My name is Jerry James. I am the CEO of COMPTEL, which has
a 31-year history as the largest trade association for the
competitive communications industry, with members providing all
forms of communications services from voice, data, video,
managed services, cloud, Ethernet, using every form of
technology available to deliver service to their customers.
Many of COMPTEL's members are small and medium-sized
businesses themselves while we do have large members who are
national companies with thousands of employees. This committee
has a history of supporting pro-competitive policies such as
the 1996 Act. Our members are proving this committee is correct
in its support of these policies by the fact that COMPTEL
members are serving every segment of the telecommunications
market on which this subcommittee has held status hearings:
rural, wireless, video, and now wireline.
On a personal note, in my years in the industry in the
competitive companies in Texas, I have seen firsthand how pro-
competitive policies drive the creation of advanced services,
innovation, deployment of technology solutions, while also
creating new jobs, new companies and economic growth through
private investment.
Today I want to emphasize that the foundation that allows
COMPTEL members to offer all of these services is the wireline
network. Wireline is the central nervous system of all the
communications networks. Whether it is wireless, video, rural,
or all the applications and advanced services that go with
them, they depend on a competitive wireline industry.
The wireline industry, as the industry transitions to IP,
relies on two specific pro-competitive policies that ensure a
functioning free market: last-mile access and IP
interconnection. Last-mile facilities are the bottleneck for
consumers who want to access the services and technologies our
members provide. COMPTEL members have invested billions of
dollars constructing fiber networks and adding electronics to
increase the bandwidth capacities of copper facilities, which
remain highly valuable and a vital part of the communications
infrastructure. Yet, they could not be expected to overbuild an
entire network.
This is even more crucial in the business market where the
largest ILEC's still maintain significant market power. Whether
the issue is special access, copper retirement, or access to
packetized facilities, there is no escaping the fact that last-
mile access is a vital input for competition.
Sound interconnection policy, regardless of the technology
or network, must remain in place for functioning markets. In
fact, in regard to the issue of IP transition, there is a wide
agreement amongst competitive carriers, including CLECs, some
cable companies, rural ILEC's, and wireless providers, that the
FCC should confirm that the interconnection provisions of the
1996 Act apply with respect to managed VoIP services to provide
the certainty needed for the IP transition to accelerate.
It is important that Congress and the FCC recognize that
residential and business markets have distinguishing
characteristics. Businesses choose telecommunications service
in a much different way than residential customers. While a
customer may choose to forgo certain levels of quality and
reliability for the sake of price, businesses cannot afford the
same tradeoffs. Yet, it should be clear that everyone deserves
reliable, high quality voice services.
Finally, all these issues are wrapped in the IP transition.
Let us be clear. This is not about the Internet, but just a
different signaling protocol for managed voice traffic. IP is
nothing new to our members. We have been deploying it for
decades, some since 1999. Competitive companies have always
leveraged new technologies to drive innovation where the
largest incumbents have been slow to do so. But the important
note here is that the IP transition is just that: a transition.
It is no different than any other technology evolution that the
network has undergone since its inception.
Competitive providers have been leading this transition and
we are willing to do it in the future and bring about a new
wave of innovation. But we are at a crossroads. Basic,
fundamental rules that ensure competition and consumer choice
remain vital. It is important that customers continue to reap
the benefits of new technologies and of innovations brought
forth by competition. To ensure this, the FCC and Congress must
continue to embrace pro-competitive policies such as last-mile
access and IP interconnection that will drive investment,
innovation, and more choice in the marketplace.
Thank you for the opportunity to appear today, and I am
happy to answer any of your questions.
[The prepared statement of Mr. James follows:]
Prepared Statement of Jerry James, CEO, COMPTEL
Chairman Pryor, Chairman Rockefeller, Ranking Member Wicker,
Ranking Member Thune and members of the Subcommittee, on behalf of our
COMPTEL members, I thank you for the opportunity to appear today to
discuss the status of the wireline communications industry.
My name is Jerry James and I am CEO of COMPTEL, the oldest and
largest trade association for the competitive communications industry.
COMPTEL started more than 30 years ago and today, our association has
more than 200 members, including local competitors, broadband
providers, wireless carriers, cloud service providers, supplier and
professional partners. COMPTEL's membership is diverse. Nearly two-
thirds of COMPTEL's members are small and medium-sized businesses, a
majority of which have $10 million or less in revenue and fewer than
100 employees. We also have a number of large national companies with
thousands of employees. COMPTEL member companies utilize private
investment to drive technological innovation and create economic growth
with their competitive broadband, voice, video, Internet, data and
other advanced services. Members of the competitive industry continue
to be the entrepreneurial innovators. They were the first to deploy DSL
in the mid-1990s. And, for the last decade, they have been the first to
deploy next-generation, Internet Protocol (IP)-based managed networks
that utilize copper, fiber, and wireless technologies. Whether COMPTEL
members are helping businesses meet their increasing bandwidth needs by
providing Ethernet services, saving small businesses thousands of
dollars each month in IT costs by offering cloud-based solutions, or
enabling telemedicine by providing telecommunications services to rural
health care facilities, they are the companies fostering innovation,
investing in new facilities to reach their customers, and creating jobs
across the United States.
COMPTEL members are serving every segment of the market on which
this subcommittee has held status hearings: rural, wireless and video
and they are largely running and growing their businesses with private
investment and very little, if any, support from Federal programs. But
it is important to emphasize that the key element that allows COMPTEL
members to offer these services is the wireline network.
Wireline networks are, and will continue to be, an essential
component of the communications marketplace for the foreseeable future.
Wireline remains the communications medium of choice for small, medium,
and large businesses, as well as a significant segment of the consumer
market. Businesses, in particular, require reliable, high-quality
telecommunications services, along with cutting-edge features to
conduct their day-to-day operations. For this reason, the ability to
obtain Quality of Service (QoS) and Service Level Agreements (SLAs) is
paramount to their operations. A small startup, a customer call center,
or a tech support office cannot afford to have poor voice quality, or
intermittent dial tone. Nor can these businesses afford to have
unreliable broadband Internet access service. In fact, they would soon
be out of business without reliable wireline voice and data services.
This is a crucial point to remember as I address the continued need for
the competitive opportunities Congress provided for in the
Telecommunications Act of 1996 (``the Act'') . Our members have relied
on this law as they invested private capital, which has led to, and
continues to result in, innovative service offerings and better prices
for consumers.
Furthermore, wireline is an integral element of the Nation's
communications infrastructure. The advances in wireless, specifically
4G/LTE in today's market, depend on the wireline network to handle the
tremendous increase in data consumption that is predicted in the coming
years. Cisco estimates that ``[b]y 2017, almost 21 exabytes of mobile
data traffic will be offloaded to the fixed network by means of Wi-Fi
devices and femtocells each month. Without Wi-Fi and femtocell offload,
total mobile data traffic would grow at a Compound Annual Growth Rate
(CAGR) of 74 percent between 2012 and 2017 (16-fold growth), instead of
the projected CAGR of 66 percent (13-fold growth).'' \1\ Spectrum
remains a finite resource. To ensure wireless networks can manage their
ever-increasing demand, carriers off-load traffic to wireline networks
so it can traverse to its destination.
---------------------------------------------------------------------------
\1\ See Cisco Visual Networking Index: Global Mobile Data Traffic
Forecast Update, 2012-2017, available at http://www.cisco.com/en/US/
solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11-
520862.html.
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Competitive Companies Continue to Lead the Way in the IP Transition
The transition of networks to IP technology is just another step in
the evolution of the network. Competitive telecommunications companies
have been at the forefront of the IP transition for over a decade. Some
of our members have been all-IP since 1999. Since 2009, competitors
have been asking the Commission to take action to ensure that the ILECs
(AT&T and Verizon, in particular) comply with their obligations under
Sections 251 and 252 of the Act and allow competitors to exchange
managed voice traffic with them at points on their network where they
have IP facilities, so consumers may experience the full benefits of
VoIP.\2\ To be clear, we are not talking about ``Over the Top'' (OTT)
VoIP or the Internet, but managed voice traffic exchanged between
carriers.
---------------------------------------------------------------------------
\2\ Letter of William H. Weber, Cbeyond, et al., to Marlene Dortch,
GN Docket No. 09-51, p. 1, filed Sept. 22, 2009.
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As the FCC's recent Public Notice on the IP Transition recognizes,
VoIP interconnection has been happening all over the world ``at a rapid
rate'' yet it has been delayed in this country notwithstanding ``the
efforts of some cable companies and competitive local exchange
carriers.'' \3\ This delay is not technical. Rather, it is the result
of the largest ILECs ignoring the Act's interconnection obligations.
These large ILECs continue to require competing carriers to convert
traffic to legacy TDM-format prior to delivering it to the ILEC even
where the ILEC itself has deployed facilities that could transport the
traffic in packet form on its own network. This forced conversion
increases cost for unnecessary media gateways, and reduces voice
quality for consumers because of the unnecessary protocol conversions.
The data clearly shows that the largest ILECs serve the largest share
of voice subscribers \4\ and, therefore, are the largest traffic
exchange partners for all voice providers. Larger network operators
have no incentive to interconnect with smaller. As a result, as the FCC
stated in the Local Competition Order (para. 55) ``Incumbent
LECS have no economic incentive . . . to provide potential competitors
with opportunities to interconnect with and make use of the incumbent
LEC's network.''
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\3\ Technology Transitions Policy Task Force Seeks Comment on
Potential Trials, GN Docket No. 13-5, Public Notice, DA 13-1016
(Technology Transitions Policy Task Force, May 10, 2013) (Notice) at 4.
\4\ The FCC's most recent local competition report indicates that
the PSTN (defined here as retail switched access lines and VoIP
subscriptions) consists of just over 141 million retail local telephone
connections (as of June 2012). Source: Local Telephone Competition,
Status as of June, 2012, Industry Analysis Division, Figure 1, page 2.
Of this, AT&T, Verizon and CenturyLink (the ILECs that coincidently
seek to escape their interconnection obligations) serve 51 percent of
the total connections. Sources: AT&T 10Q 2Q2012 at 18; Verizon 10Q
2Q2012 at 30; and CenturyLink 10Q2012 at 30. If the ``PSTN'' is defined
to include mobile subscriptions, AT&T and Verizon (including their
mobile affiliates), as well as CenturyLink, serve 61 percent of the
total connections. Sources: AT&T 10Q 2Q2012 at 18; Verizon 10Q 2Q2012
at 27; and CenturyLink 10Q2012 at 30.
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Last Mile Access and Interconnection are Vital to the IP Transition's
Success
Both Congress and its expert agency, the FCC, must keep in mind
that the marketplace would not be where it is today, but for the
requirements of last mile access and interconnection. Those two
provisions are the foundation on which local competition was able to
develop and grow and are technologically neutral. The provisions were
enacted by Congress, which recognized that without them, competition in
the local market would be unsustainable. Though some say those
provisions are no longer needed, the reality is that last mile access
and interconnection are still required to ensure a competitive wireline
marketplace today and these provisions must continue to be enforced by
the FCC.
Access to Last Mile Facilities is Critical to Bringing Consumers
Broadband Services and Cutting-Edge Technologies
Competitive providers have invested billions of dollars
constructing facilities to serve their customers. However, competitors
continue to face significant barriers to building their own last mile
facilities because the fact remains that the large ILECs still have the
advantages of incumbency (and a 100 year head start) to achieve a cost
structure that no competitor can achieve. The largest investment costs
associated with deploying an IP network (as with any network) exist at
Layer 1 (the Physical Layer) with the infrastructure and facilities--
including costs to obtain space on as poles, rights of way, conduit,
local permitting, and buildings--not with higher layers that
electronically define and control traffic flows. By contrast, large
incumbent carriers, such as AT&T and Verizon, have ubiquitous networks
that they inherited as a result of their historical monopoly. In light
of these facts, it is not surprising that the Government Accountability
Office, the Department of Justice, and the FCC have all found that in
the vast majority of locations in the country, incumbents control the
only wireline connection that can be used to serve business customers.
AT&T and Verizon have exploited this control to secure an 80 percent
share of the market for dedicated, high-capacity broadband circuits--
known as ``special access''--that are used to deliver reliable and
high-speed services to American businesses.
The large incumbents have used their overwhelming market power to
charge exorbitant prices to competitive carriers that seek to purchase
special access circuits and use them to provide innovative business
broadband services. For example, a recent analysis commissioned by
COMPTEL shows that AT&T's prices for so-called packet-based
``Ethernet'' special access circuits are between six and 11 times
higher than prices for comparable services.\5\
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\5\ Evaluating the Just and Reasonableness of BOC Ethernet
Offerings (dated Apr. 2013), Attachment A, to Comments of CompTel, WC
Docket No. 05-25, filed Apr. 16, 2013.
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The large incumbents further use their market power to impose
anticompetitive terms and conditions through exclusionary, ``demand
lock up'' plans on competitive carriers seeking to purchase special
access. For example, in many areas, in order to obtain a ``discount''
on circuits for which a purchaser has no alternative supplier (i.e.,
the vast majority of circuits), the purchaser must commit to buying the
majority of its total circuit demand from the incumbent--including
circuits for which a cheaper alternative may be available. In addition,
large incumbent LECs include ``take or pay'' provisions in their
special access contracts so purchasers that do not meet their volume
commitments are nonetheless required to pay for any committed but
unused circuits.
The large incumbents' failure to offer special access circuits on
just and reasonable rates, terms, and conditions--as required by the
Communications Act--not only threatens innovation and investment in
business broadband, but also has consequences for the larger economy. A
recent study, found that failure to reform the FCC's special access
policies, among others, could result in a loss of as many of 300,000
existing jobs in the telecom sector and a reduction of up to $30
billion per year in capital expenditures in U.S. telecommunications
networks.\6\
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\6\ Susan M. Gately et al., ``The Benefits of a Competitive
Business Broadband Market'' (April 2013).
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Congress should urge the FCC to take swift action to prevent these
harms. First, the agency should use the existing record in the long-
pending special access rulemaking proceeding to adopt interim rules to
address incumbent carriers' exclusionary, special access ``demand lock
up'' plans. Second, while the FCC has adopted a mandatory information
collection to gather data on special access prices, terms, and
conditions, it has not yet submitted that information collection to the
Office of Management and Budget for approval. The agency should do so
as soon as possible. Third, the FCC should use the information it
collects to conduct a market power analysis and adopt comprehensive
final rules that govern the rates, terms, and conditions on which
incumbent LECs must offer wholesale access to last-mile facilities in
the geographic and product markets in which they possess market power.
And those rules should apply to both so-called legacy, ``TDM-based''
last-mile facilities and newer, packet-based last-mile facilities.
There is no question that the large ILECs use the advantages of
incumbency to achieve more economical cost structures in network
deployments. For instance, Verizon's FiOS fiber network not only shares
the same infrastructure that houses its copper facilities, its copper
network also becomes the supporting infrastructure when Verizon lashes
the fiber directly to the copper cable. AT&T`s U-verse architecture
exploits the preexisting copper network to an even greater extent, as
it relies on the existing local copper loop (albeit shortened) to
connect individual subscribers to its U-verse fiber. As AT&T explains:
AT&T does not have two separate outside plant networks. For its
high-speed U-verse services, AT&T deployed fiber from central
offices to specialized field terminals, after which U-verse
services travel to the customer`s location over copper
facilities. The copper and fiber infrastructures combine to
make a single seamless network.\7\
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\7\ Reply Declaration of Betsy Farrell Supporting Comments of AT&T
California, Before the California Public Utilities Commission,
Rulemaking to Evaluate Telecommunications Corporations Service Quality
Performance and Consider Modification to Service Quality Rules,
Rulemaking 11-12-0001, filed March 1, 2012, at 43.
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AT&T`s cable and wire facilities were deployed over many decades
and the deployment was protected by regulatory policy and subsidies.\8\
The costly physical assets that underlie the IP networks of Verizon and
AT&T are the same assets that have served as the PSTN for years. In
addition to these physical assets, these ILECs are leveraging the other
great benefit of incumbency: a still massive customer-base.\9\
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\8\ Although the Commission`s ICC reform seeks to end the system of
access support, the fact is that the system went on for decades and the
local networks of the ILECs are largely fully depreciated. Nationally,
in 2007, which is the last year the FCC required that this information
be made public, 73 percent of the Total Plant in Service had been
depreciated, and nearly 75 percent of the Cable and Wire Facilities had
been recovered. 2007 ARMIS 43-04, Total Large ILECs, Rows 2260, 3080,
1530 and 3060.
\9\ AT&T serves over 39 million wireline voice connections, while
Verizon serves over 24 million wireline voice connections. AT&T data
available at http://www.att.com/gen/investor-relations?pid=262, 4Q2011,
Financial and Operating Results (PDF), page 13 of 21. Verizon data
available at http://www22.verizon.com/investor/
qreport_quarterly_earnings_verizon_4q_
2011_01242012.htm, 4Q2011, Financial and Operating Information (PDF),
page 16.
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Finally, where it is not feasible for COMPTEL members to build
their own facilities, many are investing in technologies that maximize
the bandwidth capacity and speed of the existing copper network.
Members are offering Ethernet over Copper (EoC) services to small and
medium-sized businesses that allow for high-speed broadband services.
Moreover, as fiber has still not been deployed to a large percentage of
buildings, copper remains a critical resource for delivering high
capacity broadband services to these buildings.
Some large incumbents have begun to remove existing copper
facilities over which EoC services are provided. Unfortunately, because
the FCC has permitted incumbents to deny competitors access to other
facilities, including packetized facilities, that enable the delivery
of broadband services, the competitive alternatives available to
customers diminish or disappear. The FCC must revise its current rules
to take into account not only the continued value of existing network
infrastructure, but also competitor access to advanced broadband
facilities continues to best serve consumers.
Sound Interconnection Policy is Vital for Functioning Markets
It is vital for any successful communications policy to guarantee
the ability of service providers to interconnect with other providers,
regardless of the technology used in the underlying networks. As long
as we maintain and promote a strong interconnection policy in
telecommunications services, investment is higher, prices are more
competitive, jobs and productivity increase, and innovation flourishes.
IP-to-IP Interconnection for Exchanging Voice Traffic is Nothing New
Under the Act
Congress mandated interconnection between competing providers in
the 1996 Act because it understood the history of the industry and that
competition itself does not ensure interconnection between providers,
especially where some are much larger than others, and possess market
power. Sections 251/252 provide for interconnection at any technically
feasible point, at just and reasonable rates, and the opportunity for
arbitration where the parties' negotiations fail. These protections
continue to be necessary as the PSTN transitions from TDM to IP
transmission technology. Congress has already established the framework
for negotiations and minimum requirements, as well as the process for
the arbitration/approval of interconnection agreements. Additionally,
the FCC's record is complete in demonstrating that VoIP interconnection
falls within that framework. In its universal service/intercarrier
compensation order that was released in November 2011, the FCC found
that IP interconnection for voice services is critical, that the
interconnection provisions in the statute are technology neutral, and
that it expected carriers to negotiate in good faith in response to
requests for IP-to-IP interconnection agreements for the exchange of
voice traffic.
There Is Widespread Agreement that the Communications Act's
Interconnection Provisions Still Apply
The FCC is actively considering IP interconnection issues in its
universal service/intercarrier compensation proceeding. The record is
complete and industry members, including cable providers, rural ILECs,
and wireless providers, overwhelmingly support a ruling from the FCC
that the ILECs must negotiate VoIP interconnection agreements. The
reasons for this support are that:
(1) the largest ILECs have ubiquitous networks in their service
territories with access to every home and business;
(2) these same ILECs continue to serve the majority of both business
and residential wireline consumers in the U.S.; and
(3) alternative providers cannot compete if they do not have an
interconnection agreement with the ILECs.
Today, our members only have interconnection agreements with the
ILECs to exchange traffic in TDM format, and it is widely recognized
that the transition to IP in the U.S. has been slowed by the lack of
interconnection with the major ILECs. Indeed, the FCC's own Technology
Advisory Council observed that the major ILECs are slowing the
transition by refusing to negotiate interconnection agreements and that
the FCC could speed the process by answering the critical question of
whether Sections 251/252 of the Communications Act apply to VoIP
interconnection.
The technical feasibility of VoIP interconnection has already been
established. The largest ILECs have the facilities in their networks to
exchange voice traffic over the PSTN with other carriers on an IP-to-IP
basis. All that is truly needed to move the industry forward in the
transition is for these ILECs to comply with the interconnection
provisions of the Act. Consumers should not have to wait any longer to
reap the benefits of this new technology. Accordingly, the Commission
should address the IP policy framework and confirm that Sections 251
and 252 apply to IP-to-IP interconnection.
The Importance of Managed Networks for Voice Services
Managed VoIP service is voice service transmitted using IP
technology over wireline, wireless, and coaxial cable networks. Unlike
the services over the Internet, managed IP services, including managed
VoIP services, can provide the kind of service-level guarantees that
businesses expect. The Internet is a ``best efforts'' network, which
means that traffic is routed and congestion controlled based on the
principal of ``first come, first routed.'' In contrast, managed IP
services can match performance to the particular needs of different
information flows obtained through traffic management techniques.\10\
---------------------------------------------------------------------------
\10\ See NRRI white paper entitled ``The Transition to an All-IP
Network: A Primer on the Architectural Components of IP
Interconnection'' available at http://communities.nrri.org/documents/
317330/7821a20b-b136-44ee-bee0-8cd5331c7c0b.
---------------------------------------------------------------------------
Consequently, managed voice services remain the dominant form of
voice communications in the U.S., even when just looking at VoIP
service. While some consumers may find an OTT VoIP service that is
transmitted over the public Internet sufficient for their needs, the
majority do not. This conclusion is supported by the fact that only 10
percent of all U.S. VoIP subscribers use OTT VoIP services.\11\
---------------------------------------------------------------------------
\11\ Local Telephone Competition, Status as of June, 2012, Industry
Analysis Division, Figure 5, page 7. http://transition.fcc.gov/
Daily_Releases/Daily_Business/2013/db0621/DOC-3215
68A1.pdf.
---------------------------------------------------------------------------
Indeed, AT&T and Verizon's own product design and marketing for
their managed VoIP services demonstrate the need to assure customers
that their voice service does not traverse the Internet. AT&T confirms
to its customers that ``AT&T U-verse Voice service is provided over
AT&T's world-class managed network and not the public Internet.'' \12\
Likewise, Verizon explains to its customers that its managed VoIP
service ``is not the same as the services you get with a little
Internet adapter for your modem and phone, and it does not ever touch
the public Internet.'' \13\
---------------------------------------------------------------------------
\12\ AT&T: How AT&T U-verse Voice is different from the digital
voice products of other providers, available at http://www.att.com/
esupport/article.jsp?sid=KB401031#fbid=L8RYx19uzva.
\13\ Verizon Press Release, ``FiOS Digital Voice: Here's How It
Works, Verizon's Managed IP Network Links Customers' Homes to
Softswitch and Applications Service, Enabling Innovative Services,''
June 3, 2010, available at http://newscenter2.verizon.com/press-
releases/verizon/2010/fios-digital-voice-heres.html.
---------------------------------------------------------------------------
Nonetheless, a common, inaccurate theme echoed by AT&T and Verizon
is that the mere existence of Internet peering and transit agreements
demonstrates that unregulated interconnection agreements for managed
voice services will allow competition to flourish. However, what AT&T
and Verizon neglect to plainly state is that the peering agreements
used to move Internet traffic that they cite so freely are not used to
terminate traffic to their FiOS and U-verse customers because those
customers receive managed voice services. While the FiOS and U-verse
networks use IP transmission technology, the traffic does not traverse
the public Internet.
In fact, there is no question that these managed VoIP services
differ from the public Internet, nor is there any question that the
exchange of this traffic will be subject to agreements that differ from
the Internet peering arrangements that AT&T and Verizon continuously
and erroneously cite. The only relevant question is whether IP
interconnection agreements and network arrangements will be
nondiscriminatory, reciprocal and public (which are the core
requirements of Sections 251 and 252), or offered only to favored
partners, distorted by one-sided compensation obligations, and secret.
Conclusion
Congress should encourage the FCC to examine solutions and policies
that allow consumers and businesses to continue to reap the benefits of
the competitive telecommunications marketplace. It is not just about
access for competitive telecommunications providers. It is about
ensuring that the Nation's businesses continue to have access to
cutting-edge digital technologies and applications that drive value and
growth. The ability of competitive service providers to interconnect
and access the underlying communications infrastructure on reasonable
terms and conditions, while maximizing existing infrastructure, will
continue to provide consumers and businesses with the tools they need
to succeed and increase economic growth and opportunities throughout
the Nation.
Senator Pryor. Thank you.
Mr. Downes?
STATEMENT OF LARRY DOWNES, INTERNET INDUSTRY ANALYST AND AUTHOR
Mr. Downes. Thank you, Chairman Pryor and Ranking Member
Wicker, members of this subcommittee. Thank you for this
opportunity to testify today on the state of wireline
communications.
My name is Larry Downes. I am based in Silicon Valley, and
I am an Internet industry analyst, the author of several books
on the information economy, innovation, and the impact of
regulation. I have also written extensively on the effect of
communications regulation on the dynamic broadband ecosystem
and, in particular, the role played by the FCC and local
regulators.
This is, obviously, an exciting time to be talking about
the state of wireline. As you all know, the communications
industry is in the midst of its most profound technological
transformation in over a century of evolution. The old public-
switched telephone network, the PSTN, is quickly being
succeeded by native IP networks, the foundation of the modern
Internet.
Quite simply, the IP transition is already happening. As
many as half of all U.S. homes have already cut the cord to the
PSTN, a number that could rise to 75 percent by 2015. They have
moved to all IP broadband networks delivered over a range of
infrastructure technologies, including cable, fiber, satellite,
and mobile.
And they have moved for a good reason. The regulated PSTN
world is static. It offers voice services in a world where
voice has not only become just one of many forms of
communication, but increasingly one of the least favored. For
data traffic, it offers slow data speeds, too slow to support
fast-growing high definition video applications. We now have
better and cheaper technology available to us. When that
happens, as history makes abundantly clear, it is only a matter
of time before consumers make the switch and increasingly less
time at that.
Critics of an accelerated IP transition warn of the risk of
leaving behind the remaining Americans who still rely solely on
PSTN, particularly in rural communities and among some elderly
and low-income households.
We in Silicon Valley see it very differently. We believe
that the faster we can shut down the obsolete PSTN network, the
faster we can help those users who still rely on it make the
leap to the 21st century to broadband Internet and all it has
to offer.
According to research from the Pew Internet study, 20
percent of American adults still do not use the Internet, a
group that nearly perfectly overlaps with those still tied to
the PSTN network. Sadly, nearly half of that group give as
their primary reason not the cost of broadband services but
simply that they do not think there is anything there for them.
Moving them to an all IP network, if only for voice, will get
us halfway toward showing them otherwise. The other half should
be easy or at least easier.
I share the worthy goal of the FCC's 2010 National
Broadband Plan of full broadband adoption as soon as possible
and for the reasons the plans authors so ably spelled out. We
want everyone on the Internet, not just at home but around the
world. The Internet exhibits what economists call ``network
effects,'' which means that the more people and devices and
apps that use it, the faster its value increases.
With the PSTN network off and everyone transitioned to
native IP networks, we can that much sooner build out the next
generation of Internet services that will revolutionize
education, health care, energy, employment, community, public
safety, and entertainment.
There are, of course, many complicated issues to be
resolved in shutting down the PSTN, which is why the FCC is now
considering petitions for trials in select markets. Many of
those submitting comments paint dramatic, doomsday scenarios
even from simple trials. Frankly, the most extreme concerns
were raised by self-interested parties eager to slow the
transition to a speed more suited to their own business
strategies. But conducting the trials in any case will make
abundantly clear which are real and which are ephemeral.
We still have to solve potentially thorny transition
issues, including public safety and ancillary technologies such
as security systems, health monitoring equipment, and others
that today require a connection to PSTN in order to function.
But technology entrepreneurs believe that the best solution
to a technology problem is more technology, not more government
mandates, byzantine regulatory structures that lend themselves
to abuse. Set a date for IP transition and watch how fast the
remaining technological and business hurdles evaporate as
innovators do what they do best, solve problems on deadline.
As I describe in my written testimony, however, there is a
clear and inevitable role for Congress and the FCC to play in
bringing the extraordinary benefits of broadband IP to
everyone, much as there was in the transition from analog to
digital television. But we should heed the lessons of that
flawed earlier effort. For one thing, we need to set aggressive
targets and stick to them. If we do, the problems, real and
imagined, will largely take care of themselves.
Thank you and I look forward to your questions.
[The prepared statement of Mr. Downes follows:]
Prepared Statement of Larry Downes,\1\ Internet Industry Analyst
and Author
---------------------------------------------------------------------------
\1\ Larry Downes is an Internet industry analyst and author. His
books include Unleashing the Killer App (Harvard Business School Press,
1998), The Laws of Disruption (Basic Books, 2009) and Big Bang
Disruption: Strategy in an Age of Devastating Innovation (Penguin
Portfolio, forthcoming 2013).
---------------------------------------------------------------------------
Chairman Pryor, Ranking Member Wicker and members of the
Subcommittee, thank you for this opportunity to testify on the state of
wireline competition.
My name is Larry Downes. Based in Silicon Valley, I am an Internet
industry analyst and the author of several books on the information
economy, innovation, and the impact of regulation. I have also written
extensively on the effect of communications regulation on the dynamic
broadband ecosystem, and in particular the role played by the FCC and
local regulators.
Summary
Wireline communication is in the midst of its most profound
technological transformation in over a century of evolution. The old
public-switched telephone network (PSTN) is joining other obsolete
networking technologies in converting to the packet-switched network
protocols of the Internet (IP). Analog equipment is being replaced with
digital; copper is being replaced or supplemented with fiber optic
cable. Voice, video and data are converging onto a single standard, and
moving over a single global network infrastructure.
The emerging communications ecosystem, which includes broadband
networks using fiber, cable, satellite and mobile technologies, is
exponentially more efficient, extendable, and powerful than the
separate, aging networks it is replacing. It offers new services that
were unimaginable just a few years ago, and promises to accelerate its
offerings in the coming decade. It is generating profound economic
growth and new competitive advantage for American businesses that are
leading the revolution.
The nature of wireline competition has changed utterly, and will
continue to evolve as IP our technology industries complete their
conversion to Internet standards. Wireline network operators, as the
FCC acknowledges, increasingly compete not only with each other but
with providers of mobile and other broadband networks, as well as cloud
hosting and digital commerce services, content providers, consumer
electronics device manufacturers, and operating system and other
software developers.\2\ Already, American consumers are enjoying the
benefits of highly competitive, integrated markets for all manner of
communication and information services.
---------------------------------------------------------------------------
\2\ Larry Downes, FCC Refuses to State the Obvious: Mobile Market
is Competitive, CNET News.com, April 3, 2013, available at http://
news.cnet.com/8301-1035_3-57577630-94/fcc-refuses-to-state-the-obvious-
mobile-market-is-competitive/.
---------------------------------------------------------------------------
While phone companies once dismissed the Internet as an inferior
communications protocol for voice, carriers large and small have now
embraced it. As switched network technology matured, IP has zoomed
ahead, supporting exploding demands from consumers, small businesses,
cloud-based services, and the coming deluge of machine-to-machine
communications known as ``the Internet of Things.'' This new ecosystem
is emerging organically from the deployment of robust, global broadband
IP networks, a dividend from over $1 trillion in private funding
invested in IP-based technologies in the first decade of the commercial
Internet.\3\
---------------------------------------------------------------------------
\3\ See Reed Hundt & Blair Levin, The Politics of Abundance: How
Technology Can Fix the Budget, Revive the American Dream, and Establish
Obama's Legacy 9 (2012).
---------------------------------------------------------------------------
Not surprisingly, the communications industry itself is being
affected more profoundly than any other by disruptive technologies. But
the transition to an all-IP network follows a pattern in disruptive
technological innovation I have been studying for most of my career. In
our recent Harvard Business Review article, ``Big Bang Disruption,'' my
co-author Paul F. Nunes and I reported on research into a new model of
technology-based innovation, one that is dramatically remaking every
sector of the global economy, and in record time.\4\
---------------------------------------------------------------------------
\4\ Larry Downes & Paul F. Nunes, Big Bang Disruption, Harvard
Business Review, March, 2013, at 44, available at http://hbr.org/2013/
03/big-bang-disruption/ar/1.
---------------------------------------------------------------------------
This accelerating pace of industry change, I believe, has profound
implications for the regulatory process, particularly for agencies
operating at the center of what Joseph Schumpeter once called ``the
perennial gale of creative destruction.'' \5\
---------------------------------------------------------------------------
\5\ Joseph A. Schumpeter, Capitalism, Socialism, and Democracy
(Harper 3d ed. 2008) (1942).
---------------------------------------------------------------------------
Dynamic, technology-driven markets, for example, increasingly
remedy their own harms more quickly and far more efficiently than
regulators can. As change accelerates, on the other hand, the
deliberative pace of regulation increasingly means that by the time
laws are passed and rules are made, consumers, markets, and providers
have long since moved on.
Under laws that date back nearly a century, regulatory agencies
such as the FCC continue to tinker with 21st century problems using a
19th century toolkit. They are encouraged to do so by the siren song of
competitors who prefer to lobby than to evolve, and by state and local
regulators who fear they will play a far smaller role in the broadband
future.
But it is simply impossible even for those of us in Silicon Valley
and other technology hubs to anticipate how future technology
improvements will evolve and the kinds of markets they will both create
and destroy. Government must admit to its institutional hubris. Today's
laws and regulatory rules reflect a profoundly dangerous belief that,
despite being disconnected from the messy realities of rapid technology
change, regulations can nonetheless predict the future and head off
consumer harms that haven't yet occurred.
But regulators cannot imagine what is to come, even in the short
term. No one can. Instead Silicon Valley investors have refined the art
of making small bets on a range of experiments, watching closely to see
which ones consumers embrace.
Increasingly, the risks of government getting it wrong outweigh the
benefits, if any, of intervention.
I urge this Committee, in its analysis of communications and
technology markets and industries, to consider adding a healthy dose of
technological humility--of adopting a ``watchful waiting'' principle
for disruptive technologies, and Hippocratic-like oath to ``first do no
harm.'' Legislate only when it's clear that there is demonstrable harm
to consumers, a remedy that isn't so broad as to cause unintended
negative side effects, and no reasonable hope that the next generation
of technology will moot the problem before new rules can be crafted.\6\
---------------------------------------------------------------------------
\6\ Larry Downes, Toward a Technology `Watchful Waiting'
Principle,' Technology Liberation Front, Jan. 17, 2013, available at
http://techliberation.com/2013/01/17/toward-a-technology-watchful-
waiting-principle/. See also Geoffrey A. Manne & Joshua D. Wright,
Innovation and the Limits of Antitrust, George Mason Law & Economics
Research Paper No. 09-54 (Oct. 27, 2012) (``It is because of these
dynamic and often largely unanticipated consequences of novel
technological innovation that both the likelihood and social cost of
erroneous interventions against innovation are increased.''), available
at http://papers.ssrn.com/sol3/papers.cfm
?abstract_id=1490849.
---------------------------------------------------------------------------
My testimony addresses the most significant regulatory challenge
facing the wireline industry today: the transition to all-IP networks
and the accelerated retirement of the obsolete PSTN. I will describe
what I see as the most productive role for Congress and the FCC in
supporting that transition, and the benefits of universal broadband
adoption and economic growth that will result from getting it right. I
will also discuss the particular issue of IP-to-IP interconnection, and
lessons learned from the flawed but ultimately successful transition,
last decade, from analog to digital television.
Accelerating the IP Transition \7\
---------------------------------------------------------------------------
\7\ Some of the comments that follow are derived from Comments
filed with the FCC that I filed jointly with TechFreedom and the
International Center for Law & Economics. See How the FCC Can Lead the
Way to Internet Everywhere by Enabling the IP Transition, Reply
Comments of Geoffrey A. Manne, Matthew Starr, Berin Szoka and Larry
Downes, In the matter of the technological transition of the Nation's
communication's infrastructure, GN Docket No 12-353, (Filed on Feb. 25,
2013), available at http://apps.fcc.gov/ecfs/document/view?id
=7022125022.
---------------------------------------------------------------------------
The IP-based ecosystem reduces economic friction to dramatic
effect. In information industries more than anywhere else,
entrepreneurs now develop new products and services in real-time.
Indeed, early users are increasingly co-developers, participating in
product design, financing (through services such as Kickstarter),
marketing and even customer service. The result is a new kind of
technology disruptor, the ``big bang disruptor'': one that enters the
market as a cheaper, higher-quality, and more customizable substitute
for existing products offered by incumbent providers.
In response to the sudden abandonment of older products and
services by consumers with easy access to new big bang disruptions,
many incumbents fail to adapt, unable to accept the death of the
generation of core technologies on which their companies were built.
Challenging much of the conventional wisdom of strategy and
competition, my co-author and I argue that incumbents, if they are to
survive, must learn to see disruption coming much sooner and react
decisively and quickly. Incumbents trained by a generation of strategic
planning theory to wait for new markets to mature before beginning the
transformation of their core business have waited too long. Many don't
survive the transition.
Big Bang Disruption is nowhere more visible than it is in the
communications industry itself. It is hard to overestimate the
magnitude of the shift taking place in our technology infrastructure.
Like many of the industries in our study, the transformation is
following a familiar pattern. As disruptive technologies become both
better and cheaper, customers abandon older products and services
gradually, and then suddenly.
This is especially true for legacy PSTN providers still operating
under Title II of the Communications Act.\8\ For legacy PSTN providers,
pricing, quality, and access to infrastructure by competitors are all
regulated on the slower clock speed of government agencies. As their
customers migrate to better and cheaper alternatives that are free of
such regulations, the added gravitational pressure on the incumbents,
who must continue to operate as common carriers, becomes unbearable.
---------------------------------------------------------------------------
\8\ Communications Act of 1934, 47 USC Sec. 151 et. seq. (1934).
---------------------------------------------------------------------------
PSTN providers can't beat better and cheaper with worse and more
expensive, especially when worse and more expensive has to stay that
way as a matter of law.
They must move faster. Customers are abandoning wired telephone
service in favor of fiber and cable-based Voice over IP (VoIP) and
mobile broadband at a remarkable rate. At its peak, the PSTN network
connected nearly every American. By the end of 2011, less than half of
all American homes still had a wired connection. That number could fall
to as little as 25 percent by 2015.\9\
---------------------------------------------------------------------------
\9\ Larry Downes, Larry Downes, Telcos Race Toward an all-IP
Future, CNET News.com, Jan 8, 2013, available at http://ces.cnet.com/
8301-34435_1-57562644/telcos-race-toward-an-all-ip-future/.
---------------------------------------------------------------------------
The disruptor here, of course, is networking technology that
operates natively using the packet-switching protocols of the Internet.
IP networks, crucially, don't care if the packets contain voice, data,
or video content. While phone companies once dismissed IP as unsuitable
for voice communications, carriers large and small have now embraced IP
as the only option to satisfy exploding demand of consumers, cloud-
based services, and the coming data deluge of machine-to-machine
communications known as ``the Internet of Things.''
That superior design has created an enormous black hole for PSTN
network operators. As fewer customers subscribe to wireline services,
the cost of maintaining aging copper and analog switches is increasing
dramatically, both in absolute terms and on a per-customer basis. As
much as 50 percent of current wireline expenditures go toward
maintenance. By comparison, the operating expenses of native IP
networks can be as much as 90 percent less than for PSTN.\10\
---------------------------------------------------------------------------
\10\ Id. See also Larry Downes, AT&T Moves Dramatically Towards
``Internet Everywhere,'' Forbes, Nov. 8, 2012, available at http://
www.forbes.com/sites/larrydownes/2012/11/08/att-moves-dramatically-
towards-internet-everywhere/.
---------------------------------------------------------------------------
To their credit, the incumbent providers are trying to retire and
replace what had been, until recently, their most valuable assets. Both
Verizon and AT&T have spent billions accelerating the replacement of
copper with fiber, and circuit-switched with packet-switched equipment.
But turning off the old network isn't as simple as it sounds. By
law, carriers cannot retire the switched network without Federal and
perhaps state regulatory approval, even if superior alternatives are in
place. And the FCC and state regulators have balked at giving
permission for the switchover, calling for more study on proposed
trials for PSTN to IP switchovers in test markets.\11\
---------------------------------------------------------------------------
\11\ Larry Downes, FCC Again Balks on Telephone Network Shutdown,
CNET News.com, May 14, 2013, available at http://news.cnet.com/8301-
1023_3-57584306-93/fcc-again-balks-on-telephone-network-shutdown/.
---------------------------------------------------------------------------
The longer the carriers are required to spend money maintaining the
obsolete networks, however, the less capital budget is available to
accelerate the replacement of aging and obsolete equipment with better
and cheaper IP technologies, including fiber optics, digital switches,
and upgrades to straining cellular networks.
In the end, the real victims of the regulatory logjam are the
remaining wireline customers who are also, not surprisingly, the ones
least likely to be benefiting from Internet services. The customer
segments that are farthest behind in broadband adoption, according to
FCC data, are those most likely to be relying on switched telephone
networks as their only form of communication access.\12\ These include
rural users, seniors, and low-income customers.
---------------------------------------------------------------------------
\12\ FCC, Eighth Broadband Progress Report, GN Docket 11-121 (Aug
21, 2012), 122 at p. 54, available at http://hraunfoss.fcc.gov/
edocs_public/attachmatch/FCC-12-90A1.pdf.
---------------------------------------------------------------------------
Getting these communities onto IP networks sooner rather than later
eliminates the need for expensive duplication of the obsolete switched
infrastructure. It will also make it easier and less expensive for them
to connect to other broadband services including video and Internet
access.
In that sense, allowing the carriers to accelerate the transition
to IP would overcome many of the obstacles that keep 20 percent of
American adults from joining the Internet. According to the Pew
Internet Project, almost half of that group cite as their primary
reason not to connect a lack of relevance to their needs, rather than
cost.\13\ With IP-based telephony in place, however, the relevance for
employment, education, health care, family life, entertainment and
commerce would be far easier to communicate.
---------------------------------------------------------------------------
\13\ Pew Internet and American Life Project, Digital Differences,
April 13, 2012, available at http://pewinternet.org/Reports/2012/
Digital-differences/Main-Report/Internet-adoption-over-time.aspx.
---------------------------------------------------------------------------
For Congress and the FCC, this is the moment of truth. The IP
Transition is gaining speed, and its ultimate completion is inevitable.
But even inevitable advances in technological progress can be delayed
significantly by over-regulation, denying some consumers the full
benefits of the Internet ecosystem.
The FCC has an unavoidable role to play in the process. As
communications markets are being simultaneously destroyed and
recreated, regulations designed to dull the sharper edges of once-
static and siloed technologies are now, as the agency recognizes,
posing the very real danger of unintentionally holding back the
progress of innovation. The agency must unravel itself from its
complicated relationships with the affected industries, and quickly.
To begin with, the FCC should expeditiously grant pending petitions
for trials to switchover PSTN networks to native IP. And, while the
trials are underway, the FCC should use begin planning a pro-transition
agenda that can be enacted swiftly upon successful completion of the
trials--or modified as necessary to adjust for any lessons learned.
Specifically, Congress and the FCC should:
1. Clearly define the IP Transition as a central Federal policy
objective and make clear its intentions that VoIP be left
unregulated.
2. The FCC should preempt state regulators' efforts to preserve PSTN
networks beyond their useful lives to the long-term detriment
of ratepayers.
3. Plan and set a date certain for PSTN retirement, based on lessons
learned in the successful transition from analog to digital
television.
4. Retire legacy Federal regulations that are unintentionally
slowing the transition to all-IP infrastructure and retarding
the adoption of broadband, especially among rural and low-
income populations.
5. Make clear that Title II regulations will never apply to IP
networks.
6. Refrain from asserting Title I ancillary authority to impose
mandated interconnection requirements on IP networks, and
instead leave interconnection in the hands of the private
parties exchanging the traffic.
There has been some progress in achieving these objectives, albeit
slow. The National Broadband Plan, in particular, showed vision in
urging the Commission to move immediately to accelerate the transition
away from circuit-switched networks to native IP.\14\ As the Plan
noted, ``[r]egulations require certain carriers to maintain [legacy TDM
networks]--a requirement that is not sustainable--and lead to
investments in assets that could be stranded.'' \15\
---------------------------------------------------------------------------
\14\ See Connecting America: The National Broadband Plan, Sec. 4.5
at p. 59 (2010) (``National Broadband Plan''), available at http://
download.broadband.gov/plan/national-broadband-plan.pdf.
\15\ Id.
---------------------------------------------------------------------------
In creating the Technology Transitions Policy Task Force, the FCC
likewise took an important step to encourage the rapid transition
``from special purpose to general purpose, from circuit-switched to
packet-switched, and from copper to fiber and wireless-based
networks.'' \16\ Then-Chairman Genachowski noted at the time:
---------------------------------------------------------------------------
\16\ FCC, FCC Chairman Announces Formation of ``Technology
Transitions Policy Task Force'', (Dec. 10, 2012), http://www.fcc.gov/
document/fcc-chairman-announces-technology-transitions-policy-task-
force.
Technological transitions don't change the basic mission of the
FCC. But technology changes can drive changes in markets and
competition. And many of the Commission's existing rules draw
technology-based distinctions. So the ongoing changes in our
Nation's communications networks require a hard look at many
rules that were written for a different technological and
market landscape.\17\
---------------------------------------------------------------------------
\17\ Id.
The point of these farsighted statements is both clear and
accurate: Regulators should not pick winners and losers in the
broadband ecosystem. But that truism does not mean the Commission
should not take action to advance new technologies that are clearly
superior.\18\ IP networks, in design and implementation, are in every
relevant measure exponentially better than PSTN. Lawmakers and
regulators should continue to hasten their adoption, focus on making
the transition as smooth as possible for all consumers and refrain from
placing regulatory impediments in the way of their success.
---------------------------------------------------------------------------
\18\ In nearly every government provision of spectrum in the last
hundred years, Congress has clearly picked what it felt were ``better''
technologies and used policy levers to promote their adoption.
Similarly, by excluding broadband Internet access from Title II
regulations in the 1996 Communications Act, Congress affirmatively and
wisely promoted an unregulated market for IP-based services, and
mandated the FCC to do the same. See, e.g., Communications Act of 1996,
47 U.S.C. Sec. Sec. 153(24), 230, 706 (1996). See also NCTA v. Brand X
Internet Services, 545 U.S. 967 (2005).
---------------------------------------------------------------------------
Some critics of proposed IP transition trials have argued for the
continued application of existing regulations (particularly
interconnection mandates under Sections 251 and 252 of the
Communications Act), arguing that these provisions should apply in a
``technology neutral'' fashion.\19\
---------------------------------------------------------------------------
\19\ See, e.g., Comments of Competitive Carriers Association, In re
AT&T Petition, GN Docket No. 12-353 (Filed Jan. 28, 2013), available at
http://apps.fcc.gov/ecfs/document/view?id
=7022113646.
---------------------------------------------------------------------------
According to these critics, ``the policy justifications for
requiring ILECs to provide interconnection and to submit to
arbitration--namely, the ubiquity of ILECs' telecommunications networks
and market power that these pervasive networks confer--arise regardless
of the technology used by those networks to transmit and exchange
telecommunications traffic.'' \20\
---------------------------------------------------------------------------
\20\ Id. at 3.
---------------------------------------------------------------------------
Not only are these complaints irrelevant to the proposed trials
(which are small steps aimed at determining precisely whether
constraints such as Sections 251 and 252 are appropriate), but their
alleged policy justification is not, in fact, ``technology neutral.''
Instead, it is a call to apply barnacled rules, crafted over decades
specifically for the technology and business realities of the PSTN, to
a new ecosystem that shares few, if any, of the same characteristics.
Technology neutrality does not mean blindly enforcing design
principles suited for tree houses as buildings codes for steel
skyscrapers. Modern structures are clearly better. They require
entirely different rules, and different kinds of enforcement. Applying
PSTN rules to IP networks is bad business and bad public policy. There
are no regulated monopolies in the IP ecosystem, and no need for the
kind of regulations aimed at controlling them.
An all-IP-infrastructure is clearly better for everyone. The sooner
we can complete the transition, the sooner we will reap the full
dividends of continuing private and public investments in this new
infrastructure. Getting the transition right will not only save the
legacy PSTN operators from irrelevance. It will likely bolster the U.S.
economy, accelerate the technological empowerment of Americans as both
citizens and consumers, and sustain global competitiveness for U.S.
technology companies.
As the National Broadband Plan put it,
[B]roadband is a foundation for economic growth, job creation,
global competitiveness and a better way of life. It is enabling
entire new industries and unlocking vast new possibilities for
existing ones. It is changing how we educate children, deliver
health care, manage energy, ensure public safety, engage
government, and access, organize, and disseminate
knowledge.\21\
---------------------------------------------------------------------------
\21\ National Broadband Plan, supra note 14, at xi. See also
chapters 10-16. And see Robert E. Litan and Hal Singer, The Need for
Speed: A New Framework for Telecommunications Policy in the 21st
Century (Brookings Institution Press 2013).
In The Politics of Abundance, former FCC Chairman Reed Hundt and
his one-time chief of staff Blair Levin make a persuasive case that the
shift to ``connected computing''--broadband Internet, cloud-based
services, and widespread mobile devices--is essential to jumpstart the
U.S. economy. Hundt and Levin urge all levels of government to take
immediate steps to support what they call the ``knowledge platform''--
ultra high-speed broadband with high reliability and low latency, able
to support high-bandwidth, video-intensive applications and cloud-based
services.
As Hundt and Levin write, ``[t]o increase growth, job creation,
productivity gains, and exports at a faster rate, government should
double down on what is already doubling in the Internet sector.'' \22\
They point, for example, to the fact that Internet transit prices have
improved as much as 50 percent each year. (See Figure 1)
---------------------------------------------------------------------------
\22\ Reed Hundt & Blair Levin, The Politics of Abundance: How
Technology Can Fix the Budget, Revive the American Dream, and Establish
Obama's Legacy 9 (2012), 16-17.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: Hundt & Levin, supra note 22, Figure 2.1, p. 105
Figure 1--Internet Transit Price per 1 Mbps, 1998-2015
The kind of high-speed, widely accessible and affordable broadband
Hundt and Levin describe also provides the tools that innovators need
to launch more Big Bang Disruptions. All-IP networks will vastly expand
the possibilities of the next generation of cloud services like Google,
Facebook, Twitter and Salesforce. These services and others that will
follow will be superior in ways both easily imaginable (instant, more
reliable interaction with richer media like video, streaming
presentations, and more robust tools) but also in ways that we cannot
yet imagine.
Preserving Peer-Based Interconnection
The IP Transition will accelerate the ongoing transformation of our
digital experiences in ways that could be as revolutionary as the
introduction of the Internet itself. It is imperative that government,
private sector companies, and consumers work together to get it done as
quickly as possible.
Government, in particular, should work to undo much of the
regulatory mess that unnecessarily constrains legacy PSTN providers as
they transition to IP. For example, Congress and the FCC should reject
self-serving calls to impose outdated regulations mandated network
interconnection, devised for an era of monopoly voice carriage, on the
well-functioning market for private Internet peering agreements, which
already ably provides for voice as well as video and data traffic
management.
Private peering arrangements have long provided an efficient
mechanism for interconnection on packet-switched networks, regardless
of whether the packets contain data, video, and voice applications. The
shutdown of PSTN networks and the migration of additional voice traffic
to the Internet do not change the dynamics of that system. As Michael
Kende, former Director of Internet Policy Analysis at the FCC has
recently written:
[T]he competitive concerns that historically drove
interconnection regulations for PSTN-based voice service are no
longer valid due to the rapid take-up of many different types
of alternative communications services to traditional voice,
such as cable telephony, software-based voice over IP (VoIP),
and other IP-based forms of communications. Therefore, as voice
migrates to the Internet there is no need for any regulation of
IP voice traffic which mirrors the regulation of the PSTN on
competition grounds, because the current IP interconnection
arrangements show how traffic will flow end-to-end without a
regulatory mandate.\23\
---------------------------------------------------------------------------
\23\ Michael Kende, Voice Traffic Exchange in an IP World, Analyses
Mason, April 12, 2013, at 2.
Today, marketplace and reputational incentives drive
interconnection and consumer protections. These incentives are
buttressed by various multistakeholder processes that continue to
evolve to supplement direct company-to-company dispute resolution.\24\
At the same time, the FCC retains authority under Title I of the
Communications Act to regulate for public safety, and antitrust and
consumer protection laws govern IP services precisely because they are
not regulated as common carriers (which are excluded from the FTC's
general jurisdiction over the economy).\25\
---------------------------------------------------------------------------
\24\ Most notable among these is the Broadband Internet Technical
Advisory Group (BITAG), ``a technical advisory group to discuss and
opine on technical issues pertaining to the operation of the Internet,
as a means of bringing transparency and clarity to network management
processes as well as the interaction among networks, applications,
devices and content.'' BITAG History, http://www.bitag.org/
bitag_organization.php?action=history (last visited February 25, 2013).
\25\ See Federal Trade Commission, Broadband Connectivity
Competition Policy, 3 (2007), available at http://www.ftc.gov/reports/
broadband/v070000report.pdf (``[FTC] jurisdiction [over broadband
Internet access services] had once been regarded as limited to the
extent that the FTC's general enforcement authority under the FTC Act
did not extend to entities that were `common carriers' under the
Communications Act. The regulatory and judicial decisions at issue,
however, confirmed that the larger categories of broadband Internet
access services, as information services, are not exempt from FTC
enforcement of the FTC Act.'').
---------------------------------------------------------------------------
If significant issues do arise in the IP transition that escape
these multiple layers of regulatory and governance constraints,
Congress can of course enact legislation appropriately targeted to
address clear consumer harms. But narrowly tailored legislation from
Congress after the IP transition has evolved of its own accord is the
proper mechanism for addressing such issues--not by bringing the dead
weight of old regulatory baggage to new markets.
Not surprisingly, several parties in the FCC's on-going IP
transition proceedings have urged the agency to transplant legacy
interconnection requirements on IP networks as part of the retirement
of the PSTN. PSTN interconnection requirements, however, were
formulated when the Bell System was a true, regulated monopoly. They
were a necessary evil to control monopolistic risks, and they have
imposed considerable waste, fraud and unnecessary cost in exchange for
that benefit. Consider, for example, recent FCC reforms of intercarrier
compensation aimed at reducing such interconnection arbitrage as
traffic pumping, phantom traffic and other abuses.\26\
---------------------------------------------------------------------------
\26\ Report and Order and Further Notice of Proposed Rulemaking, In
re Developing a Unified Intercarrier Compensation Regime, CC Docket No.
01-92 (November 18, 2011), available at http://www.fcc.gov/document/
fcc-releases-connect-america-fund-order-reforms-usficc-broadband.
---------------------------------------------------------------------------
In the IP world, by contrast, network operators worldwide negotiate
all manner of peering agreements absent any regulation. Indeed, peering
within the IP network is so easily achieved, as the OECD has pointed
out, that ``the terms and conditions of the Internet interconnection
model are so generally agreed upon that 99.5 percent of interconnection
agreements are concluded without a written contract.'' \27\ Simply put,
there is no evidence that anything is broken in the IP network
ecosystem.
---------------------------------------------------------------------------
\27\ OECD, Committee for Information, Computer and Information
Policy, Internet Traffic Exchange: Market Developments and Policy
Changes, 3 (June, 2011), available at http://search.oecd.org/
officialdocuments/publicdisplaydocumentpdf/?cote=DSTI/ICCP/CISP(2011)2/
FINAL&docLanguage=En.
---------------------------------------------------------------------------
Those asking regulators to invent an IP interconnection regulatory
scheme for voice (or perhaps for all Internet traffic) invoke public
interest concerns, but the real motivation is simple rent-seeking.
Smaller carriers prefer below-market rates for backhaul, and CLECs are
eager to protect their subsidized business model in new ecosystems that
are already highly competitive. But these desires have nothing to do
with consumer harms, let alone the public interest. In any case, the
FCC should avoid ``prophylactic'' regulations for interconnection
problems that, as even those asking for them admit, are speculative.
That Internet peering works so well absent regulation is no
surprise. Major ISPs have strong business incentives to interconnect.
For example, ISP customers increasingly demand access to streaming
video content from services such as Netflix and Amazon, and ISPs know
that streaming video is the primary reason that customers are willing
to pay for high-speed broadband connections at home.
Where disputes have arisen (often around the distinction between
settlement-free transit vendors and paid-peering content delivery
networks (CDN), for example \28\), they have taken the form of contract
disputes between large commercial players over the specific terms of
interconnection, not whether it will be available.
---------------------------------------------------------------------------
\28\ See, e.g., Marguerite Reardon, Understanding the Level 3-
Comcast spat (FAQ), C-Net (November 30, 2010), available at http://
news.cnet.com/8301-30686_3-20024197-266.html.
---------------------------------------------------------------------------
Moreover, demand for streaming video has become so strong that
Netflix, having established its own CDN, can now sidestep such disputes
and pressure ISPs to accede to its peering demands by threatening to
withhold new content or services. It has now content providers, in
other words, and not ISPs, who threaten to withhold traffic.\29\ The
newfound market power of content providers--as well as increasing
intermodal competition from mobile broadband--upends the weathered
assumption that ISPs hold all of the bargaining power in
interconnection negotiations.
---------------------------------------------------------------------------
\29\ See, e.g., Betsy Isaacson, Netflix Says 3D and 'Super-HD'
Movies Are Just Around The Corner--But Only For Some Customers,
Huffington Post (January 9, 2013), available at http://
www.huffingtonpost.com/2013/01/09/netflix-3d-movies_n_2441394.html;
Fred Campbell, Netflix Blocking Internet Access to HD Movies, The
Technology Liberation Front (January 17, 2013), available at http://
techliberation.com/2013/01/17/netflix-blocking-internet-access-to-hd-
movies/; Fred Campbell, What Does Netflix's Decision to Block Internet
Content Tell Us About Internet Policy?, The Technology Liberation Front
(January 23, 2013), available at http://techliberation.com/2013/01/23/
what-does-netflixs-decision-to-block-internet-content-tell-us-about-
internet-policy/.
---------------------------------------------------------------------------
Lessons from the Digital Television Transition
In encouraging the rapid transition of wireline providers to all-IP
networks, Congress should heed the lessons of the earlier transition
from analog to digital television (DTV). The DTV experience underscores
the importance of accelerating deregulation of obsolete networks before
consumers abandon them, of setting and sticking to a date certain, and
to avoiding the temptation to prophylactically regulate for consumers
harms that have yet to appear.
At its height in the 1970s, 93 percent of all American homes relied
on antennas. But analog broadcast couldn't compete with the quality or
the quantity of cable channels. As digital technology expanded the
scope and efficiency of cable and later fiber-based programming, it
became clear that over-the-air broadcasters would likewise need to
convert to digital signals to compete.
Shutting down analog broadcast, however, required government
coordination. In 1996, Congress mandated the conversion from analog to
digital broadcast in 1996, setting a deadline of 2006 and authorizing
the FCC to coordinate the transition.
The coordinated switch to DTV was intended to make the highly-
regulated broadcasters more competitive with the relatively unregulated
cable industry.
How? Digital TV lowered costs and created new opportunities for
broadcasters. As part of the transition, for example, broadcasters
traded their analog radio spectrum allocations in the 700 MHz band for
a new 6 MHz block in the 600 MHz band. Because digital signals are more
compressed, each 6 MHz block could be split and used for multiple
channels, all of them capable of high-definition broadcast, as well as
new mobile business opportunities for the broadcasters.
So far, however, few station operators have been able to make use
of that capacity to offer extra channels or to repurpose underutilized
spectrum for mobile or other premium services. That's largely because,
in the end, the DTV transition was delayed until 2009. By then, over-
the-air television had already entered an unrecoverable dive in
viewership and revenue.\30\ According to research from the Consumer
Electronics Association, the decline in over-the-air audience became
irreversible between 2005, when the transition should have happened,
and 2009, when it finally did.\31\
---------------------------------------------------------------------------
\30\ See Sam Schechner and Rebecca Dana, Local TV Stations Facing a
Fuzzy Future, The Wall Street Journal, Feb. 10, 2009, available at
http://online.wsj.com/article/SB12342291035
7065971.html.
\31\ CEA Study: Consumers are Tuning Out Over-the-Air TV, May 31,
2011, available at http://www.ce.org/News/News-Releases/Press-Releases/
2011-Press-Releases/20110531-CEA-Study-Consumers-Are-Tuning-Out-Over-
t.aspx.
---------------------------------------------------------------------------
Delays in the DTV transition were largely the result of unfounded
and exaggerated fears that some consumers would not be ready in time. A
2006 article in Fortune, for example, warned breathlessly that the DTV
transition would ``render about 70 million TV sets obsolete,'' and that
``for consumers with one of those 70 million sets--many of whom are
likely to be poor, elderly or uneducated, being forcibly switched from
one technology to another will be a nightmare.'' \32\
---------------------------------------------------------------------------
\32\ Marc Gunther, Digital TV: Leaving Viewers in Limbo, Fortune,
Jan. 19, 2006, available at http://money.cnn.com/2006/01/04/technology/
pluggedin_digitaltv/index.htm.
---------------------------------------------------------------------------
The reality, of course, was very different. Consumers who weren't
already cable or satellite subscribers and whose energy-inefficient
tube television sets were too old to receive digital signals were
barely inconvenienced, let alone ``forcibly switched.''
Many had already moved to cable or satellite by the time the DTV
transition occurred. For the rest, all they had to do was to buy and
attach small digital converter boxes to their old TVs. Under a plan
implemented by the Department of Commerce, consumers could even apply
for up to two $40 coupons with which to purchase the converters, funded
by proceeds from the 700 MHz spectrum auctions.
On the fateful day, June 12, 2009, according to Nielsen, almost no
one was left without television service. As Figure 2 shows, nearly all
``unready homes'' had successfully made the transition by using the
converter box, or by switching to digital cable or satellite. No
television was rendered ``obsolete,'' let alone 70 million.\33\
---------------------------------------------------------------------------
\33\ Nielsen, The Switch from Analog to Digital TV, Nov. 2, 2009,
available at http://www.nielsen.com/us/en/newswire/2009/the-switch-
from-analog-to-digital-tv.html.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Figure 2--Consumers Adapted to the DTV Conversion
Delaying the transition by three years, however, blunted the
potential of a coordinated and timely switchover in crucial ways.
Consumers had more time to switch to cable or satellite to avoid
dealing with the transition at all, imposing real damage on
broadcasters. That loss of viewers makes it harder to this day for the
broadcasters to offer new and competing products using their new
spectrum and digital technology upgrades.
Ultimately, that translates to a loss to consumer of more
competition in the video marketplace. Delays that were intended to
protect consumers, in the end, did just the opposite.
The IP transition should be easier. Unlike digital television,
consumers will not need to replace equipment already in their homes,
nor will they need to install adapters for existing telephones. In some
cases, fiber optic cable will replace copper wiring in the heart of the
network; in other cases, fiber will be run directly to the home. But
inside wiring will not be affected, and existing telephones (far
cheaper to replace, in any case, than old analog televisions) will
continue to operate, just as they do now in homes that have already
switched to Internet voice services.
It is true that some rural users may need to switch from landline
to mobile service, especially in remote areas where the cost of
installing wired IP networks is prohibitive. But the FCC can subsidize
the cost of that switch--as indeed it already does through the
recently-reformed Universal Service Fund.\34\
---------------------------------------------------------------------------
\34\ See Marguerite Reardon, FCC Reforms Phone Subsidy Program for
the Poor, CNET News.com, Jan. 31, 2013, available at http://
news.cnet.com/8301-30686_3-57369007-266/fcc-reforms-phone-subsidy-
program-for-the-poor/.
---------------------------------------------------------------------------
As with DTV transition, however, ungrounded fears of what could go
wrong could continue to delay the IP transition, with dangerous and
unintended consequences for consumers--particularly those for whom
advocates most claim to be looking out.
Conclusion
Consumers naturally resist change, even when being offered new
products and services that are better and cheaper. But where the
introduction of new technologies once required careful planning by
providers and different marketing delivered to different groups of
users, research on Big Bang Disruptions reveals that the process has
changed dramatically. The old bell curve model of technology adoption
first described by Everett Rogers is gone, replaced by a much steeper
curve in which adoption is nearly universal and immediate. The Internet
revolution has compressed the old categories to just two: early users,
and everyone else.\35\ (See Figure 3.)
---------------------------------------------------------------------------
\35\ See Downes and Nunes, Big Bang Disruption, supra note 4, at
47.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
(Source: Downes and Nunes, supra note 4, at 47)
Figure 3--The New Model of Technology Adoption
The adoption of IP-based voice services is following the new model,
and its impact on wireline competition has already been devastating.
Congress and the FCC must act to preserve the residual value of the
PSTN and ease the transition for those Americans who have yet to make
the leap.
Some consumers will no doubt encounter problems in the final
transition from PSTN networks. Some of these issues will be addressed
by more technology or, where truly necessary, by regulatory
intervention. But as with the DTV transition, the real problems will
likely turn out to be far less imposing, and visited on far fewer
consumers, than pre-transition anxiety suggests. That of course is the
reason to conduct trials in the first place: to unearth and resolve as
many potential issues as possible, and to make clear where problems do
not in fact exist.
In the DTV transition, broadcasters set free too late to make use
of their new competitive technologies are now limping into extinction.
If we don't get the IP transition right, the same fate could be
unnecessarily visited on incumbent PSTN network operators. But in the
end, as before, it will be consumers who pay the price for that
failure.
Senator Pryor. Thank you.
Ms. Sohn?
STATEMENT OF GIGI B. SOHN, PRESIDENT AND CEO,
PUBLIC KNOWLEDGE
Ms. Sohn. Chairman Pryor, Ranking Member Wicker, members of
the Subcommittee, thank you for inviting me to give the public
interest perspective on the IP transition.
The transition of our wireline networks to Internet
Protocol-based services is a tremendous opportunity for our
nation, but we must make sure the transition results in actual
upgrade in technology without a downgrade in the services upon
which Americans depend.
For decades, our country has used reasonable rules based on
fundamental principles to build a phone network that became the
envy of the world. We are the country that brought a phone to
every farm, the country that built a network you can count on.
We accomplished this by moving certain fundamental values with
us as our networks evolved. As we now face the opportunities
and challenges of implementing the next generation of
communications technology, we must continue to leave no one
behind.
Americans are so used to relying on the protections of the
phone network that they often do not even notice them. We
conduct our business and personal communications as if they can
always trust that the phone network will just work because it
has. We can choose to use whatever phone we want. When the
power goes out during a natural disaster, our phones will keep
working. During emergencies, we can always call for help from
police, fire fighters, and hospitals. When someone calls a
friend on another phone network, that call will always go
through regardless of which carriers they subscribe to or where
they live. When the bill comes for that call, the user can rest
assured that there will be no fraudulent charges and the
carrier will not have traded her to another carrier without her
permission. If a user changes phone companies, she can keep her
phone number. In the rare instance that any part of the system
breaks down, government authorities at the local, State, and
Federal levels move swiftly to act as if our lives depended on
it because they do.
Every one of these benefits is the result of deliberate
policy choices that serve specific basic values. Our phone
network became the envy of the world because our policymakers
valued what Public Knowledge calls the five fundamental
principles: one, service to all Americans; two, competition and
interconnection; three, consumer protection; four, network
reliability; and five, public safety. These values are no less
relevant and, if anything, are even more important as we begin
the transition to IP networks.
There are some who believe that the IP transition should be
a glide path to eliminating FCC oversight. But as carriers
begin the transition, we have concrete examples that many of
the essential services we take for granted are at risk in rural
and not-so-rural areas for individuals and for small
businesses.
One of the worst problems, as Shirley Bloomfield mentioned,
is the continuing inability of rural residents to receive
telephone reliably. As carriers switch to IP technology, they
can route calls through least-cost router systems, creating
latency, and sometimes trapping calls in perpetual loops so
calls do not go through. In a world where we simply allow the
marketplace to work, this does not get fixed. As one carrier
told a complaining subscriber--and I quote--due to living in a
rural area, you will experience service issues. That was the
response.
In Hurricane Sandy-ravaged Fire Island, just 60 miles from
Manhattan, Verizon has replaced their damaged copper network
with Voice Link wireless service. Hundreds of residents, many
of them elderly, have complained to the New York Public Service
Commission. For example, Dr. Samuel Mann complained that he
cannot reliably receive emergency calls from his hospital. Jean
Ufer writes that her husband's pacemaker cannot be monitored
via Voice Link. And Mr. and Mrs. Howard Bedell are concerned
that their father cannot use Voice Link for his Life Alert.
Jonathan Randazzo, who owns five restaurants and businesses on
Fire Island, had his credit card machine stop working on a
recent Saturday evening. According to the ``Washington Post,''
Randazzo hopped from table to table scribbling credit card
numbers and asking for signatures.
Now, this could happen to any community that has ever
experienced a natural disaster strong enough to damage network
lines.
Before you or in back of you or in back of me is a chart of
services supported by Verizon's copper network that are not
supported by Voice Link: reliable 911, medical alerts, security
systems, broadband access, just to name a few.
Members of the Subcommittee, these are not luxuries. These
are necessities, and in many cases they are a matter of life or
death.
This is why we need rules of the road to govern the
transition and beyond not because Verizon is a bad actor. They
are not. But because problems will inevitably arise as old
systems fade and new ones arise. Even at this early stage,
carriers have shown that they will not voluntarily defend the
fundamental principles that have made our networks great.
The IP transition is an appropriate time for policymakers
to review and update the rules for new technologies and ensure
our communications policy continues to put everyday Americans
first.
But the question is not whether simply old rules apply to
new networks. The question is whether we continue to believe in
the same basic American values that have governed the
relationship between our society and our communications
networks for over a century.
Thank you and I look forward to your questions.
[The prepared statement of Ms. Sohn follows:]
Prepared Statement of Gigi B. Sohn, President and CEO, Public Knowledge
Chairman Pryor, Ranking Member Wicker, and members of the
Subcommittee, thank you for this opportunity to discuss the state of
our nation's wireline communications networks. My name is Gigi Sohn and
I am the President and CEO of Public Knowledge, a nonprofit public
interest organization that promotes the public's access to information
and culture through open, competitive, and universally accessible and
affordable communications networks.\1\
---------------------------------------------------------------------------
\1\ I would like to thank my Public Knowledge colleagues Jodie
Griffin, Christopher Lewis, Harold Feld, Clarissa Ramon, and Girard
Kelly for assisting me with the research and drafting of this
testimony.
---------------------------------------------------------------------------
Introduction
The transition of our wireline networks to Internet Protocol (IP)-
based services is a tremendous opportunity for our nation, but we must
make sure the transition results in an actual upgrade in technology
without a downgrade in the services upon which Americans depend. Right
now we are in the midst of the transition: carriers are already
actively moving their networks from the traditional Time-Division
Multiplexing (TDM) protocol to IP-based technology. At the same time,
we are seeing carriers show increasing interest in replacing their
copper infrastructure with wireless service or with fiber for portions
of their networks, often depending on the density and average income of
each particular market.
For decades, our country has used reasonable rules based on
fundamental principles to build a phone network that became the envy of
the world. We are the country that brought a phone to every farm--the
country that built a network you can count on. We accomplished this by
moving certain fundamental values forward with us as our communications
networks evolved since the founding of our country. As we now face the
opportunities and challenges of implementing the next generation of
communications technology, we must continue to leave no one behind.
For decades, the phone network in the U.S. has quietly and reliably
provided benefits to the American public. These benefits have become so
firmly engrained in the U.S. economy, public safety systems, and
personal communications that users take for granted the consumer
protections and competition policies that make them possible. These
benefits were not a happy accident--they were the result of deliberate
communications policies that demanded a telecommunications network that
served its users first and foremost.
Just listing a few of the things we love about our phone network
reveals how we are so used to relying on the protections of the phone
network we often don't even notice them. We conduct our business and
personal communications as if we can always trust that the phone
network will just work--because it will. We can choose to use whatever
phone we want. When the power goes out during a natural disaster, our
phones--and the central offices that service them--will keep working.
In times of emergency, we can always call for aid from police,
firefighters, and medical teams. When someone calls a friend on another
phone network, that call will always go through--regardless of which
carriers the two users subscribe to or where they each live. When the
bill comes for that call, the user can rest assured that there will be
no fraudulent charges and the carrier will not have ``traded'' her to
another carrier without her permission. If a user changes phone
companies, she can keep her phone number. We know that we can benefit
from the innovations and features built on the phone network because it
is an open platform: innovations like the internet, new handsets,
calling cards, and collect calls. And in the rare instance that any
part of this system breaks down, we know that there are government
authorities at the local, state, and Federal levels equipped to fix the
problem and protect users' interests.
Every single one of these benefits is the result of deliberate
policy choices that served specific basic values. Our phone network
became the unparalleled success we know today because our policymakers
valued five fundamental principles: 1) service to all Americans; 2)
competition and interconnection; 3) consumer protection; 4) network
reliability; and 5) public safety.\2\ These values are no less relevant
and, if anything, are even more important as we begin the transition to
the next iteration of our Nation's communications networks.
---------------------------------------------------------------------------
\2\ See Jodie Griffin and Harold Feld, Five Fundamentals for the
Phone Network Transition, Public Knowledge (July 2013).
---------------------------------------------------------------------------
The transition of our phone network is happening now because there
is already a business case for it. The fact that the carriers are
already actively updating their networks now means we need not worry
that our current rules are standing in the way of the transition, but
this is still an appropriate time for policymakers to review and update
the rules for new technologies and ensure our communications policy
continues to put everyday Americans first. The technology we use to
communicate may be changing, but our basic social goals and values
remain the same.
The Transition to All-IP is A Good Thing, But It Must Be Handled
Responsibly
The transition to newer technologies in our communications network
presents a tremendous opportunity for better service, new features, and
more efficiencies that can be passed on to consumers. This does not,
however, in any way lessen the public's need for continued consumer
protection and competition policies that have made our communications
network such a success for the past 100 years. For this reason, Public
Knowledge fully supports the phone network transition. But we must make
sure this transition is a step forward, not a step backward, for
everyday Americans.
In addition to new opportunities, the phone network transition
presents risks that the new networks will lack important features that
consumers have counted on for decades. This means that policymakers at
all levels of government must ensure that the transition is handled
responsibly and everyday Americans are not left worse off during or
after the transition.
When users' ability to call 9-1-1, conduct business, or reach loved
ones is at stake, we cannot afford to permit carriers to engage in
self-help. This summer we have already witnessed what happens when
carriers replace their traditional networks with new technology without
guidance from authorities. Verizon's deployment of its fixed wireless
service, Voice Link, has deprived customers in Fire Island, New York of
important network services without advance public notice or input. This
cannot become the ``new normal.'' We are in the midst of an important
transition, but that does not mean we can let people be cut off from
the services they count on.
The first step to preserving a communications network we can all
depend on is establishing the basic values that will guide
policymakers' approach to the transition going forward. We need a basic
framework of values to evaluate the many proposals that have been put
forward before federal, state, and local regulators regarding the phone
network transition. After all, for policymakers to know how to respond
to an idea they must first know what goals and values the idea is
supposed to serve. In the case of the phone network transition,
policymakers can guide the transition to IP by relying on the same
fundamental principles that made our phone network the envy of the
world.
The Transition Will Especially Impact Rural Americans and Small
Businesses
The new pattern of carriers eager to replace existing networks with
new, untested technologies after natural disasters or when wireline
networks have simply been allowed to degrade will have especially
strong consequences for rural Americans and small businesses. Rural
areas depend on wireline services more than most, especially because
wireless deployment--even beyond its general limitations compared to
wireline service--is not very strong in rural areas. And when a rural
community loses a wireline service provider that offered DSL or other
broadband service, there is rarely any competing service to turn to for
continued Internet access. At the very least, the rural farmers who
grow our food should know that they will be able to make phone calls
and access the Internet when needed to check weather patterns, predict
crop growth, and make business arrangements to harvest and transport
crops. This also impacts more than just rural communities themselves--
when farmers are arranging food shipments to your town, do you want
them to lose service?
The recent rural call completion problem also reminds us that rural
communities may bear the brunt of unexpected complications tied to the
IP transition, with potentially devastating consequences. As carriers
switch to IP technology, it becomes possible for them to route calls
through Least Cost Router systems, creating latency and sometimes
trapping calls in perpetual loops so calls to or from rural areas do
not go through. The Commission has rightly recognized that this issue
speaks to our foundational expectation that the phone network will be
reliable for all Americans, including those in rural areas, and has
opened a proceeding to learn more about exactly why the rural call
completion problem is getting worse.\3\ But even so, the FCC has
received some shockingly inadequate carrier responses to rural call
completion complaints. For example, one carrier told the FCC: ``We have
contacted the [rural complainant] and have successfully resolved this
matter by advising [her] that due to living in a rural area she will
experience service issues.'' \4\
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\3\ Rural Call Completion, Notice of Proposed Rulemaking, WC Docket
No. 13-39 (rel. Feb. 7, 2013).
\4\ FCC Enforcement Advisory, Rural Call Completion: Long Distance
Providers Must Take Consumer Complaints About Rural Call Completion
Problems Seriously (July 19, 2013), http://transition.fcc.gov/
Daily_Releases/Daily_Business/2013/db0719/DA-13-1605A1.pdf.
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This is why we need rules of the road: problems will inevitably
arise as old systems fade away and new ones arise, but carriers have
clearly shown that we cannot simply assume that companies will
voluntarily defend the fundamental principles that have made our
communications networks great. Meanwhile, 25 states have eliminated or
reduced state commission authority over telecommunications services,
and 12 states (all of which are in AT&T's incumbent local exchange
carrier territory) have eliminated or reduced carrier of last resort
obligations.\5\ Particularly where the states have effectively written
themselves out of the conversation through deregulation, everyday
Americans are relying on Federal authorities as their sole defender to
protect the reliable, affordable communications access they count on.
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\5\ Sherry Lichtenberg, Ph.D., Telecommunications Deregulation:
Updating the Scorecard for 2013, National Regulatory Research
Institute, at 1, 20-22 (May 2013).
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The National Rural Assembly's Rural Broadband Tales \6\ reminds us
how everyday rural Americans rely on communications networks to conduct
business, pay their bills, and pursue education. If these communities
see their Internet access replaced with voice-only fixed wireless
services like Voice Link, or continue to lack adequate broadband access
in the first place, we all miss a huge opportunity to develop our
economy and connect our nation. Here are just a few of these stories:
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\6\ Rural Broadband Tales, http://placestories.com/project/
7996#!v=stories.
John Hicks, a coal miner from Perry County, Kentucky,
explains that his Internet service drops around 300 to 400
times per month, leaving him unable to pay his bills and his
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children unable to do their homework.
Joyce Dearstyne from Elk City, Idaho tells how, if she had
access to broadband, she could ``utilize e-commerce
capabilities to promote artists in the woods and other value-
added good products and create a level playing field for my
businesses and artisans to compete throughout the world.''
John Carwell, a minister from southeastern Kentucky suffers
from (1) no wireless service and (2) poor broadband service. He
explains, ``[w]e feel helpless when we talk to the
communication companies. We say we have the tower and land to
put your services and equipment on . . . We're helpless because
the response is always `well there's not enough people.' That's
tough to hear because what they're saying is `your area's not
worth it.' ''
Similarly, small businesses--particularly those in areas with
terrain inhospitable to wireless service--are vulnerable to losing
necessary communications services if this transition is not handled
responsibly. If a business's wireline connection is replaced with a
service like Voice Link that does not support Internet access or credit
card processing, they risking going out of business entirely. If a
restaurant cannot take your credit card because it only has a voice
line, or its service was just dropped, you likely won't be inclined to
return. When a coffee shop can no longer offer WiFi because its
Internet connection has been taken away, the fact that the shop might
have an almost-as-reliable wireless voice-only service in its stead
will be cold comfort as it watches paying customers walk out the door.
These are the risks faced by every area that faces potential
natural disasters, every town that contains small businesses, and every
community that wants this transition to be a step forward, not a step
backward. This is why we must be diligent in shaping a phone network
transition that creates new, better services protected by strong,
certain rules.
A Cautionary Tale: Transitioning After Natural Disasters
It is clear that the continued success of our communications
networks depends on reasoned rules and strong consumer protection
during and after the phone network transition, and that need is even
greater in communities likely to experience or already experiencing the
transition, like rural areas and areas damaged by natural disasters.
The examples we have already seen where carriers have transitioned
communities to new networks on their own initiative warn us of what
happens if policymakers do not step in to protect consumers. Without
strong guidance, we all face the very real danger that the phone
network transition will be a technological step backward and a
downgrade in consumer protection.
Communities and their residents have always had to deal with
temporary network outages after natural disasters, but now that we are
in the midst of the phone network transition, we are seeing instances
where carriers want to respond to damaged networks by replacing the
existing networks with new, untested services, rather than repairing or
rebuilding the infrastructure the community has relied on for decades.
Like the rest of the phone network transition, this can be an
opportunity for better, newer service for the community, but
unfortunately we have already seen how it can also force customers--who
are already trying to rebuild their lives after a devastating natural
disaster--to accept less reliable, more restricted services than what
they had before.
For example, after Hurricane Sandy damaged the existing copper
network in communities on the East Coast, Verizon decided to replace
its copper-based service with a fixed wireless service called Voice
Link in certain areas. Voice Link works by connecting a device linked
to Verizon's wireless network to a customer's house. It is now clear
that Voice Link constitutes a substantial step backward for many of the
permanent residents in Fire Island, New York, hundreds of whom have
already complained to the New York Public Service Commission. As a
wireless service, Voice Link does not offer the same reliability and
quality of service that the copper did, and it requires the customer to
remember to recharge or replace its batteries to function during a
power outage. Verizon specifically disclaims liability if it
negligently lets the wireless network become too congested for 9-1-1
calls to go through. And, unlike the copper network, Voice Link does
not support important features like Life Alert, other medical alerts,
security alarms, Internet access, credit card processing, calling
cards, and collect calls.\7\
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\7\ For a comparison of the capabilities of Voice Link and the
previous copper-based telecommunications service, please see Appendix
A.
---------------------------------------------------------------------------
Even a quick glance through the New York State Public Service
Commission's public comments and press reports reveals how much these
changes are impacting real customers' lives:
R. Bruce Minoff, among many other customers, complains that
wireless service in his family's area is spotty, so they now
have no option at all for reliable phone service.
Dr. Samuel J. Mann complains that he cannot reliably receive
emergency calls from his hospital now, while other families,
like Sonia Gluckman, are worried that they will not be able to
reach a doctor if their elderly parents need urgent medical
care.
Mr. and Mrs. Howard Bedell express concern that their father
cannot use Voice Link for Life Alert or to remotely connect
pacemakers and other medical devices to their hospitals, as
they previously could using Verizon's copper network.
Customers--particularly small business owners like realtor
Jean Ufer--report that they can no longer turn to uncapped DSL
Internet access for approximately $30 per month, and instead
pay $80 per month for just 10 GB of data on a 4G wireless
connection. Even outside of the office, Ms. Ufer also noted
that the switch to Voice Link has prevented her husband from
having his pacemaker remotely monitored, as he used to over the
copper line.
Jonathan Randazzo, who owns five restaurants and businesses
on Fire Island, had his credit card machine stop working on a
recent Saturday evening. According to the Washington Post,
Randazzo ``hopped from table to table, scribbling credit card
numbers and asking for signatures he created on a Word document
printed out from his computer.'' \8\
---------------------------------------------------------------------------
\8\ Cecilia Kang, Verizon Pursues All-Wireless Phone Service in
Seaside NY Town, Washington Post (July 4, 2013), http://
www.washingtonpost.com/business/technology/verizon-pursues-all-
wireless-phone-service-in-seaside-ny-town/2013/07/04/9120fa80-ac4c-
11e2-a198-99893f10d6dd_story_1.html.
Every day more complaints come in; it is clear that customers of
all backgrounds are outraged at having been switched to an inferior
service with no prior public notice or input.\9\
---------------------------------------------------------------------------
\9\ For more selected public comments submitted to the New York
State Public Service Commission, please see Appendix B.
---------------------------------------------------------------------------
Voice Link is one startling example, but the lessons are by no
means limited to Verizon, Voice Link, or Fire Island. This could happen
to any community that has ever experienced a hurricane, tornado,
earthquake, blizzard, flood, or storm strong enough to damage network
lines. We all have a stake in making sure policymakers protect the
interests of everyday Americans, especially people trying to rebuild
their communities after devastating natural disasters. Hurricane
victims cannot become the de facto guinea pigs for the phone network
transition--if we have pilot programs for new technologies, they must
be transparent and carefully controlled to protect the communities
testing the new technology.
The Transition Should Be Guided by the Five Fundamentals
As we move forward in the phone network transition, we need a basic
framework to establish the fundamental values that undergird our
communications networks and guide new policy proposals. Working within
a values-based framework ensures that our 21st Century rules will
benefit everyday Americans, not just the dominant corporations in the
telecommunications industry.
Public Knowledge submits that this framework should consist of Five
Fundamentals that have successfully steered communications policy for
decades, and continue to protect consumers and encourage innovation
today. These fundamental values--service to all Americans, competition
and interconnection, consumer protection, network reliability, and
public safety--capture the basic principles that made our phone network
a resounding success and can do the same for the next generation of
communications technology. The reality of tomorrow's network will
depend on the expectations we set today and the values we commit to
serving through the transition.
Service to All Americans
First and foremost, our national communications policy ensures the
benefits of our communications network flow to all Americans--
regardless of ``race, color, religion, national origin, or sex.'' \10\
We have, as a nation, decided to invest in a world-class communications
infrastructure and so we should, as a nation, reap the benefits of that
infrastructure. The principle of service to all Americans applies
whether users live in rural areas or urban areas. It applies to those
with any physical disability that would interfere with communication.
It applies to all users regardless of their level of income. Today, our
efforts to serve all Americans must include initiatives that go beyond
traditional concepts of deployment and take advantage of the
opportunities presented by new technologies.
---------------------------------------------------------------------------
\10\ 47 U.S.C. Sec. 151.
---------------------------------------------------------------------------
Whatever happens, the United States must not be the first
industrialized nation to step back from the goal of achieving 100
percent penetration of basic communications service. While the United
States has not yet completely achieved the goal of 100 percent build-
out, it is vital that reaching everyone in the country continues to be
the goal motivating all stakeholders to continue working until the job
is done.
This transition is also an opportunity to look forward: what new
opportunities are made possible by new technology, and how does that
impact what we determine to be the ``basic service'' that all should
have access to? The Communications Act specifies that universal service
encompasses ``an evolving level of telecommunications services'' and
that the FCC should take into account ``advances in telecommunications
and information technologies and services'' as it decides what
universal service will look like for homes, schools, libraries, and
health care providers across the country.\11\ Access to basic
communications services reaps tremendous social and economic benefits
to users, regardless of the material or technology used to transport
the communications.
---------------------------------------------------------------------------
\11\ 47 U.S.C. Sec. 254(c).
---------------------------------------------------------------------------
It remains to be seen how the U.S. will continue to pursue the goal
of 100 percent basic service for all Americans as carriers stop
maintaining their older, TDM-based facilities. It is clear, however,
that universal service and carrier of last resort policies must
continue ensuring that all users are able to purchase reliable voice
service under nondiscriminatory terms. These policies traditionally
applied to all relevant carriers operating in some way on the
traditional PSTN. Neither the make-up of the physical plant nor the
protocols used to transport data on the network diminish consumers'
need for basic service--if anything, advances and new efficiencies in
technologies may justify raising the standard for what is considered
basic service.
One of the most important goals of communications policy in the
United States is reaching universal service for all Americans across
the country. The transition of the PSTN is an opportunity to expand and
improve the communications service that all Americans receive, and our
communications authorities must determine how they can continue to
serve that goal as the traditional make-up of the PSTN changes.
Interconnection and Competition
Interconnection and other competition policies lie at the heart of
the development of a robust and competitive communications network. As
we saw more than 100 years ago, without mandatory interconnection the
phone network will slide inevitably toward monopoly as the largest
carriers can gain anticompetitive advantages by withholding access to
their customers from competitors. As carriers now move toward all-IP
networks, policymakers must determine how they will ensure
interconnection and competition among providers post-transition. These
policies are critical to creating and maintaining a functioning
interconnected network and a competitive market for communications
services.
The duty to interconnect with other networks was first a means of
enabling universal service in rural areas in the days of the old AT&T
monopoly so rural cooperatives, municipalities, and local businesses
brought service to places AT&T found too expensive to serve. Later, as
amendments to the Act shifted national policy from regulated ``natural
monopoly'' to encouraging competition among competing networks,
interconnection became the sine qua non of fostering and developing
competition. Unless we propose to return to the days of regulated
natural monopoly, policymakers must absolutely guarantee that competing
networks will continue to accept each other's traffic and terminate
each other's calls in a manner that both preserves call quality
throughout the country and actively promotes a robust and competitive
environment.
In particular, subscribers to different networks must not find
themselves with dropped calls or degraded quality of service due to
``peering disputes'' between carriers. If NBC and AT&T have a
retransmission dispute and AT&T video subscribers temporarily lose NBC
programs, it is annoying. But if Comcast and AT&T have a ``peering
dispute'' and millions of AT&T wireless customers cannot call Comcast
landlines, it is a disaster. It is not enough to speculate that
incentives will prevent such a thing from occurring. Policymakers must
make sure such an event continues to be impossible after the
transition.
It is not just idle speculation to imagine this happening in a
post-transition PSTN. Already, some carriers are refusing to file IP-
to-IP interconnection agreements at the state level. Without adequate
interconnection requirements, consumers may find themselves suffering
from interconnection disputes between carriers that provide not just
their video and Internet access, but their basic voice service as well.
If the interconnections that have tied together our voice network
unravel, dominant service providers will be able to leverage their
customer bases against competitors and control increasingly large
shares of the market, resulting in higher prices and fewer choices for
consumers.
Interconnection and competition policy also require an examination
of potential reform in call termination and access charges. Even now,
rate-of-return carriers that serve rural areas have reported
increasingly poor phone service quality and increasingly frequent
customer complaints. This quality decay prevents small businesses from
offering prompt service, threatens to hinder emergency calls to or from
public safety officials, and thwarts customers' efforts to communicate
with loved ones. These complaints should be taken as a warning of
things to come if interconnection requirements are not adequately
implemented and enforced in the post-transition PSTN.
The phone network transition also calls into question the future of
other rules and policies designed to encourage competition among
communications providers. For example, local number portability (LNP)
obligations have currently been extended to VoIP providers so that VoIP
customers may keep their North American Numbering Plan (NANP) telephone
number when changing providers. LNP rules encourage competition by
allowing consumers to respond to providers' price and service changes
without losing their phone numbers. But at this juncture the questions
inevitably arises: when the traditional PSTN is gone, what will happen
to the NANP? How can LNP rules extend to all phone service providers
without revisiting the foundation of the NANP or classifying VoIP
service?
Additionally, to preserve a competitive environment in wireline,
the law must provide certainty that businesses and competing carriers
will be able to obtain special access services at reasonable rates. If
a carrier desires to exit a market completely, Congress must ensure
that consumers are not left behind by protecting the right of local
communities and governments to provision their own communications
services.
As the PSTN transitions to new physical facilities and IP
protocols, it is critical to the competitive future of the market that
the law and rules ensure carriers will continue to interconnect and
rules will continue to promote competition in the marketplace to the
benefit of consumers.
Consumer Protection
When we talk about a system that everyday Americans count on to
call 9-1-1, businesses, and loved ones, we cannot ignore users' need
for consumer protections in the network. Competition is important, but
it does not always guarantee consumer protection. From the privacy of
phone calls to truth-in-billing to slamming and cramming, Americans
rely on a safety net of rules that protect them when they communicate
with one another. Throughout and after the PSTN transition, consumers
must continue to be adequately protected--including effective recourse
through the timely resolution of complaints.
But on the Federal level, the Federal Communications Commission has
only extended privacy rules to interconnected VoIP services by
reasoning that those VoIP services send calls to and receive calls from
the traditional phone network.\12\ It makes sense that customers should
be able to rely on the same protections they have always enjoyed when
they switch to what by all appearances seems like a pure replacement
for ``regular telephone'' service. However, without further guidance or
action it is unclear how the FCC will be able to continue applying
these rules to VoIP by relying on its authority over the traditional
phone network when the traditional phone network as we know it has been
retired.
---------------------------------------------------------------------------
\12\ 47 U.S.C. Sec. 222.
---------------------------------------------------------------------------
Even worse, ``slamming'' rules that prevent carriers from switching
subscribers' services without permission and ``cramming'' rules that
forbid carriers from adding unauthorized charges on customers' phone
bills only apply to providers that use the older, TDM-based,
technology, and do not apply to VoIP providers at all. Leaving
consumers vulnerable to predatory practices with no avenue for recourse
cannot become the new normal. Consumers should not be punished for
upgrading to new technology by receiving downgraded protections.
As the PSTN begins to transition to IP protocols and other upgraded
technologies, policymakers must come to terms with how they will
continue to protect consumers post-transition. All signs indicate that
consumer protection rules will be equally, if not more, important post-
transition than they are today, and if anything consumer protection
agencies will need flexibility to ensure that current and future
consumer protection rules serve the same basic social needs as they do
today.
Network Reliability
A comprehensive framework for the PSTN would be incomplete without
a principle ensuring that the basic mechanisms of the network will
continue to function throughout and after the PSTN transition, even and
especially in emergency situations. Above all else, Americans rely on
their communications networks to work consistently and reliably. Above
all else, a successful transition means that phone numbers still work
and calls still go through with the same reliability they do today.
The first and most fundamental criterion for network reliability is
ensuring that basic network mechanisms will continue to function during
and after the transition. We must therefore determine how the
fundamental mechanisms underlying the phone network today will continue
to operate when the traditional PSTN technology no longer exists. The
FCC currently exercises its authority over phone numbers to distribute
phone numbers through the North American Numbering Plan (NANP). Most
VoIP providers must buy phone numbers through another carrier that uses
the PSTN instead of obtaining numbers directly from a NANP
Administrator. This raises the stark and critical question: who will be
able to obtain numbers when all carriers have transitioned to IP-based
technology? How will phone numbers work in a world with no TDM-based
PSTN? These are questions that we absolutely must answer if the phone
network as users now know it is to continue operating post-transition.
After the transition, there will also be no ``copper safety net''
to offer the reliability that users have come to expect with basic
phone service. Nevertheless, users' phone service--regardless of the
protocols or materials it uses--must be able to withstand emergency
situations. Even at this early point we are witnessing phone network
technology ``upgrades'' result in less redundancy and back-up power in
the system and increased reliance on the commercial power grid,
creating a single point of failure when users need to communicate most.
This does not mean that the only answer is to hope that fiber or
wireless services suddenly become self-powered as copper is, but it
does mean that we must find new ways to ensure a reliable phone system
that doesn't let customers down when they need it most.
The impact of the transition to IP-based networks on reliability is
unfolding before us in real time. After Hurricane Sandy, Verizon
acknowledged that the storm caused outages in its FiOS voice, internet,
and video services, while users across the affected areas lined up
outside to use pay phones connected to the copper network. Similarly,
this past January customers of AT&T's U-verse voice, internet, and
video services suffered outages for days due to problems with a
software upgrade. As one customer hit by the outage put it, ``You go on
U-verse, and the old handy dandy landlines that would work no matter
what? . . . That's not happening any longer.'' \13\ This, of course, is
no new phenomenon. Outages by cable providers have been periodically
denying subscribers their services for years. Such outages would be
unacceptable in the TDM-based, circuit-switched world, and they must be
equally unacceptable in the IP world.
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\13\ Brian X.Chen, AT&T's TV, Phone and Internet Service is Down in
Some States, N.Y. Times Bits Blog (Jan. 23, 2013), http://
bits.blogs.nytimes.com/2013/01/23/atts-tv-phone-and-internet-service-
is-down-in-some-states/.
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This means that the FCC, and other regulatory authorities, must
determine how they can ensure that the post-transition PSTN continues
to guarantee robust service for everyday uses and for emergency
circumstances, when users need communications services most. As the
PSTN continues its transition, policymakers must decide how they will
ensure that consumers can continue to expect that their phone calls
will go through, every time.
Public Safety
Finally, it is unquestioned that when someone calls 9-1-1, that
person needs to know beyond a shadow of a doubt that she will be
connected in one second. Everyday Americans rely on 9-1-1 daily to call
for help in time of need. The FCC has already begun to look to the
future of public safety requirements with the Next Generation 9-1-1
transition.\14\ This conversation, however, is best situated in the
broader context of the overall PSTN transition, both to evaluate the
effect of 9-1-1 proposals on other aspects of the network, and to
anticipate the impact of non-9-1-1 proposals on our emergency
communications structure.
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\14\ The FCC is also working with surer authority in this area
compared to other aspects of the PSTN transition, based on the Next
Generation 9-1-1 Act. See Middle Class Tax Relief and Job Creation Act
of 2012, Pub. L. No. 112-96 (2012), Title VI, Subtitle E.
---------------------------------------------------------------------------
Public safety rules must ensure that emergency services like 9-1-1
and geolocation technologies continue to help first responders offer
emergency care, regardless of whether the network that the customer
uses is wireless or wireline, copper or fiber. The conversion to an
all-IP network offers an opportunity to further facilitate emergency
communications, and that opportunity must not be squandered. This also
includes ensuring that the thousands of alarm systems and alarm system
standards that rely on access to a ``telephone line'' are not disrupted
by the transition, as we have seen them be disrupted by the transition
to Voice Link in Fire Island, New York.
When the traditional architecture of the PSTN no longer exists, it
is crucial that consumers are able to contact emergency services when
they need it most. The moments in which the public relies upon
emergency services like 9-1-1 are literally life-or-death, and it is
crucial that policymakers implement rules that maintain the public
safety components of the phone network. To its credit, the FCC has
already begun the process of creating a framework for next-generation
9-1-1 services, but these issues must also be considered in the broader
context of the overall shift of the PSTN to new technologies.
Conclusion
The transition of the phone network presents new opportunities and
new challenges for policymakers seeking to ensure new networks
constitute a true step forward, not a step backward, for everyday
Americans. The stakes are high. The choices policymakers make now will
impact how the public conducts business, communicates with loved ones,
and reaches emergency services. Public Knowledge urges Congress to
follow the basic values that have informed our communications networks
since the founding of our country to ensure we can all continue to
enjoy a communications network we can count on.
Appendix A
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Appendix B
The following are just some examples of the hundreds of public
comments submitted to the New York State Public Service Commission in
its proceeding on Verizon's Voice Link deployment in Fire Island.\15\
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\15\ See New York State Public Service Commission, Tariff Filing by
Verizon New York Inc. to Introduce Language Under Which Verizon Could
Discontinue Its Current Wireline Service Offerings in a Specified Area
and Instead Offer a Wireless Service as Its Sole Service Offering in
the Area, Case 13-C-0197, http://documents.dps.ny.gov/public/
MatterManagement/CaseMaster
.aspx?MatterSeq=42688.
1. ``I bring my 93 year old mother who is in home hospice, to my
beach house on Fire Island, and having an old fashioned
landline is crucial to my feeling safe about having her
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there.''--Sonia Gluckman, 7/15/2013
2. ``We have also been relying on cell phone service through
Verizon which has been spotty, at best. My cell phone works in
our house while my husband's does not. He is a physician at
NYPresbyterian Hospital and relies on his cell phone to take
emergency calls when he is away from Manhattan. Sometimes these
calls are urgent and confidential.''--Maureen and Samuel J.
Mann, 7/15/2013
3. ``In hurricanes Irene and Sandy the land line phone service was
a life saver. Without the land-line phone I would have had to
keep my cell phone off to save battery power for 911 calls. I
am a senior citizen. With a cell phone I could not receive
calls from doctors. If land-line is dropped then people will
die. Because cell phones will run out of battery power and
people will not be able to call 911. My whole area was out of
electricity after Sandy. I lost power for 5 days in hurricane
Irene and 8 days after Sandy. My area loses power many times a
year. About a month after hurricane Sandy my area lost power
again for 12 hours. The land line phone has to stay.''--Albert
Dresner, 7/12/13
4. ``The bigger issue has been internet. I and most Fire Islander's
previously had unlimited DSL service (through the copper wires)
for about an additional $30 per month, tagged on to the phone
service. Now, for the 4G service (which is admittedly faster),
I am paying $80 per month for just 10GIGs per month of data (I
believe the cost is $10 per month for each additional 2GIGs).
Those 10 GIGs just get me and my family through a month of e-
mail, normal levels of work related Internet use, and basic
household Internet usage. . .. One could easily spend hundreds
of dollars or more per month, at Verizon's rates, in order to
regain the amount of data we previously had pre-Sandy. This is
where Verizon is truly taking advantage of us all, and what
people are most upset about.''--Keith B. Stein, 7/10/2013
5. ``Cell service is often poor on Fire Island and it can often
times requires several minutes to get cell service and may
require you to physically move to another location to pick up
service. I have previously had a heart attack and do not want
to rely solely on cellular service in case of an emergency. We
need a hard line service provider on the Island.''--Arthur
Rhein, 7/8/2013
6. ``Please help with this very bad situation with Verizon service
at Fire Island. They will not repair my landline, which my
husband really needs, as he has a pacemaker, which has to be
monitored by a land-line. They also refused to connect my DSL,
even though they charged me the monthly fee right through the
winter, when I questioned this, they said they would transfer
me to the billing department, and I was promptly
disconnected!!!!! I have a Real Estate office here in Fair
Harbor, and I am getting SO many complaints about Verizon
service, (or, NON service).''--Jean Ufer, 7/8/2013
7. ``I'm extremely unhappy and very nervous that our hardline or
copper will be cancelled. We are year round residents on Fire
Island and need a hard line to run our business and to monitor
our property from The DSL line. After the storm, I temporarily
had the Home Connect system and it worked poorly. Calls would
ring for 30 plus times before I even knew they were coming
through and we had no Internet which is essential to run a
business. Sometimes calls didn't even go through. Please don't
allow Verizon to cut our lines without offering a suitable
option. VOICE LINK DOESNT WORK.''--Barbra Heller, 7/6/2013
8. ``I'm single, live alone and am now considered `senior.' While I
don't use the telephone too often I rely it being there for
essential help in emergencies. I am active on the Internet and
require it for business connections. Life without a real
telephone would be precarious and dangerous on our relatively
isolated island.''--Patricia Robbins, 7/5/2013
9. ``During superstorm Sandy, we lost power for 2 weeks. Although
the telephone line fell and was across the backyard, we had
telephone service. We were able to call Verizon to come and fix
the line. We were able to call the children and tell them that
we're ok. We also were able to call LIPA to tell them about the
power outage. We are senior citizens in our 70s and are afraid
of not being able to call for assistance if needed.''--Robert
and Barbara Grosswald, 7/4/2013
10. ``My father was on life alert and many of the seniors who lives
alone depend on that service. I work in a Nursing and Rehab
Center and many people who have fallen and have medical issues
live alone.''--Mr. and Mrs. Howard Bedell, 7/2/2013
11. ``As a home owner in Fair Harbor I am distressed and concerned
about the `solution' of Voice Link over the copper wire system
for our phones. Already I have had an incident with being
unable to make a call from my cell phone because the network
was busy. Thankfully it was not an emergency call, but if it
had been the delay in getting through would have been
significant. With an aging mother who does come out to visit,
the idea of not being able to reach 911 in an emergency is
terrifying.''--Jennifer-jo Moyer, 7/2/2013
12. ``As a NY resident with elderly (80+) parents, and an elderly
(80+) aunt with health issues and Parkinson's Disease on Fire
Island for the entire summer, I am concerned that the Voice
Link system will not meet their needs in a time of emergency.
Cell phone signals are notoriously erratic particularly in poor
weather, and particularly on Fire Island; and I am concerned
that this system is more likely to fail in the event of an
emergency. In my elderly aunt's case, she will no longer be
able to use her medical alert bracelet as it is dependent on a
working landline. That she would be able to reach her cell
phone after falling down seems unlikely.''--Ken Rothchild, 7/2/
2013
13. ``As a senior-age Fire Island customer since 1970, my wife and I
are very dependent on a telephone system that we can rely on,
especially during health emergencies. The research that I have
done on the Voice-Link System tells me that its very unreliable
and would be a terrible down-grading for us causing lots of
anxieties. Please do not give Verizon a go-ahead ruling on
their `consumer un-friendly plan.' ''--Lee Epstein, 7/1/2013
14. We need Life Alert systems, our home alarm system and
communication with the outside world, especially in times of
weather disasters such as the recent Hurricane Sandy. During
that storm, which caused electrical power outages, our cell
phone also failed. Our landline made it possible for us to
contact our son and daughter, as well as emergency sources,
should it become necessary. Since we do not drive, having a
landline made it possible to contact neighbors should we need
food and help. There are many stresses, which accompany aging.
Losing touch with the outside world should not be another
source of worry.''--Phyllis and Herbert Hildebrand, 7/1/2013
15. ``If Verizon were to abandon the South Bronx for landlines with
the argument that the neighborhood is unprofitable due to
income, credit worthiness problems or vandalism, it would never
fly. Why then can Verizon be allowed to reduce service levels
to Fire Island?''--Kevin Lee, 6/28/2013
16. We rely on phone service for emergency response. In the short
time that we have had Voice Link we have had problems in rainy
weather. The Jetpack Internet service that, with our limited
mobility, we rely on to order medications, food and
communicating with physicians is painfully slow and does not
work at all on weekends.''--R. Bruce Minoff, 6/28/2013
17. ``My husband and I are seniors, and in the future may need life
alert. That does not work on VoiceLink. There have been break-
ins in our neighborhood, and we are going to install an alarm.
That doesn't work on VoiceLink. We have been waiting not so
patiently for FiOS to be installed in our neighborhood. I have
initiated many complaints to Verizon for noise on our line. Our
DSL is so slow, it seems as if we have dial-up Internet
service.''--Jean L. Coleman, 6/28/2013
18. ``If you are unfamiliar with Fire Island, there is very little
medical service and the only way off the island is a scheduled
ferry service or, for some people who have permits and trucks,
a very long drive. When someone needs to be rushed to the
hospital, they are evacuated by helicopter, which makes timely
emergency calls of the essence to save lives.''--Nora Olsen, 6/
20/2013
Senator Pryor. Thank you.
Let me go ahead and ask Mr. Gardner the first question. And
that is, you mentioned in your statement that residential
retail is basically out of date in terms of the regulatory
framework. So what is the solution from your standpoint?
Mr. Gardner. Thank you, Senator Pryor.
I think when you look at residential markets, it has
changed greatly in the last 10 years. In 1996, nearly 100
percent of the people in this country received wireline phone
service from the telephone company. At the current time, that
number is in the 25 to 30 percent range. That market share has
changed a lot. As was mentioned by one of the Senators, 43
percent of the people are wireless today, wireless only.
And so I think what we need to do is recognize there are
big differences between residential and enterprise in terms of
the market opportunities. We need to look at reforming
regulatory policy to fit with what the construct is today.
Wireline companies are a much smaller piece of the pie, yet
they still carry the brunt of the regulatory burden.
Senator Pryor. I want to ask Ms. Bloomfield, if I can, a
follow up from something you said. You talked about there
should be a Connect America Fund for smaller providers. How
would that work?
Ms. Bloomfield. So right now the Connect America Fund that
you hear so much about is for those carriers that are not the
rate-of-return carriers. We need to create a Connect America
Fund for the small rural carriers that will really focus on
ensuring that they continue to do the good work that they have
been doing in these markets. When you look at the evolution and
the fact that there are 92 percent of these subscribers in
these small rural communities served by these rate-of-return
carriers that actually have broadband access, it is pretty
miraculous. And I think we really become a showcase in a lot of
ways for rural areas of the rest of the world because we
recognize how important it is to connect everybody.
So I think that there is a number of different ways to go
about it. We have been presenting plans to the FCC. There is, I
think, a recognition that when you look at the carriers' costs
and reconcile what took place with the transformation order a
couple of years ago in terms of the lost revenue on the
intercarrier compensation side, kind of reconciling it to the
point where there are financial incentives for these companies
to actually make the investment that we need to have in these
communities.
And I would point out, as an example, one of the things
that I think is a little bit ironic about not having a Connect
America Fund is right now the way USF is now set for these
carriers is it supports a voice network. So we are talking
about people cutting the cord. We are talking about people
going to different networks, but you still might want that
wired broadband connection to your home because it has a very
high data capacity. Well, right now our carriers do not get
support. If that customer drops the voice service, wants the
wired network for their broadband, they do not get USF support.
So all that is going to do is increase the cost for that
consumer to actually get the broadband service. We need to move
into a broadband-enabled environment for the rural carriers as
well.
Senator Pryor. Senator Wicker?
Senator Wicker. Thank you very much.
Let me begin with Mr. Downes. You mentioned that we are in
the midst of a revolution, that the IP transition is already
happening.
And you are based in Silicon Valley, I believe. Is that
correct?
Mr. Downes. Yes, sir.
Senator Wicker. Some people are advocating a regulatory
route to approaching this transition. Others advocate a lighter
regulatory touch. As Congress looks at this issue and as the
FCC looks at this issue, what do you say to that? Do we need a
lighter touch, or do we need to delve into a whole new
regulatory scheme?
Mr. Downes. Well, Senator, I think the easiest way to think
about it is just to look at the two worlds in which consumers
are now living. We have the old PSTN world and we have the
Internet world largely unregulated, the other very regulated
still. It is clear where consumers are voting. They are moving
from one to the other, and they are moving from one to another,
as I say, for very good reasons. The service is available
through the Internet. The innovation that is possible, the
entrepreneurship that happens means that things can change and
evolve very quickly and have very quickly, obviously, quicker
than anybody would have imagined in the last 15 years.
Frankly, when we in the technology industry hear discussion
about which of the title II sections should be applied to IP
networks in the future, we are baffled. We do not understand
even how that is possible, but definitely not why we would
think it is a good idea.
In matters such as interconnection, for example, we do not
have interconnection. We have piering arrangements. They have
worked remarkably well. According to the OECD, 99.5 percent of
them are not even reduced to writing. That is how sort of
straightforward they are. Some of them are paid. Some of them
are unpaid. Some are for large, some are for small networks
connecting to each other. It is on a global basis, by the way.
This is not just in the U.S.
And, of course, it does not always work perfectly, but when
it does not, the resolution is relatively easy. In fact, this
is not about networks having power. Increasingly the content
providers have a leverage that they are exerting on this
process as well.
So we like the fact that essentially, whether
unintentionally or otherwise, the 1996 Act left broadband
technologies out of the regulatory scheme of the FCC and
particularly out of title II. That is why it has worked,
frankly, and it will continue to work as long as we leave it
alone.
Senator Wicker. OK. We have two volunteers to answer that.
I think you said these problems will take care of
themselves if left to the current regulatory structure. Is that
correct?
Mr. Downes. Yes, that is right. As I said in my testimony,
there are important roles for Congress and the FCC in the
transition itself making sure that the process happens smoothly
and hopefully more smoothly than it did in the digital
television transition. But, yes, in the actual unregulated
Internet market, things work remarkably well. We have the
multi-stakeholder governance process. We have all sorts of
mechanisms, engineering-based regulations. It is not
unregulated. It is engineering regulated. And that really works
and has continued to work for a very long time.
Senator Wicker. Ms. Sohn, I believe your hand was up first,
and then we will let Mr. James dive into this issue.
Ms. Sohn. So interconnection has been the law for 100 years
and nobody has regretted it. Let me give you a real-world
example of what happens when interconnection does not happen.
Now, granted, this is in the wireless space, but it is the same
issue.
So in Montana, AT&T decided they no longer wanted to have a
roaming agreement with Verizon. So what is happening is police
are having to drive 30 miles out of the city so they can get
connectivity. When you have players--and we are talking really
about two or three large market players that do not want
interconnection. Everybody else does. Most of the cable
companies do. All the competitive telephone companies do. The
rurals do. We are talking about two or three companies. If they
can leverage their market power, then you have got trouble.
And my question is do we really, really want to roll the
dice and wait until there are interconnection problems so a
customer from AT&T cannot call their mother who is on Comcast?
I do not think we want that. And as I said before,
interconnection has been a value and a mandate for 100 years
and it has worked marvelously well. And I do not understand why
we should retreat from that.
Senator Wicker. Mr. James?
Mr. James. Thank you, Senator.
I agree with a lot of what she just said.
First of all, we need to separate, if we can, some of the
issues.
Managed voice traffic that people have depended upon,
particularly businesses with regard to the quality but
consumers as well, is a service that has always been handled by
exchange traffic from one carrier to another. Under the 1996
Act, those are negotiated for the terms and conditions of that.
We have made conversions like analog to digital to SS7
signaling and now to IP. So we are only talking about the
managed voice. We are not talking about other broadband
services or the Internet in general. We are talking about
maintaining a quality, reliable voice service for those
customers who need that because of their business or because
they want it at home. So we do not want to confuse the issue
here. And that is what all carriers have to have in order to
serve their customers. Otherwise they cannot complete calls,
and that needs to be done in a just and reasonable manner.
Thank you.
Senator Wicker. Thank you, Mr. Chairman.
Senator Pryor. Thank you.
Senator Klobuchar?
Senator Klobuchar. Thank you very much, Mr. Chair.
I mentioned earlier this issue of call completion which has
become a real problem for rural America. I cannot tell you the
number of businesses that have told me anecdotally that their
customers told them that the calls were dropped. And then
actually they have been able to collect statistics showing
that. And that is why Senator Fischer and I have this
resolution that will be coming up next week in front of this
committee.
As we know, the FCC is making some progress on this issue,
and there is much more that needs to be done and it needs to be
done soon. There was a consent decree between the FCC and Level
3 Communications to see some improved performance, and I
applaud that but the problems still persist.
Ms. Bloomfield, do you think that the FCC's recent
enforcement advisory it published this week means that the FCC
will be taking further enforcement action?
Ms. Bloomfield. It is a very encouraging sign. And I think,
again, the leadership that you and Senator Fischer have shown
on this has helped elevate the issue. And the stories are
heart-wrenching.
I think there are a couple of things. I think the
enforcement action would be appropriate. I think Level 3 was a
good measure, but what we saw, interestingly enough, about a
week after that enforcement action, the problem just picked
back up in tenfold because, again, these least-cost routers
then look for new markets and new ways to get into these rural
markets. And then the calls just do not terminate.
So I think it would be nice to have the FCC move as quickly
as possible. I think having this issue hang out there is
difficult. I continue to get calls from consumers in rural
America as well, and you know, part of it is they are directed
to the FCC website. Well, you are just a consumer. Going to
that website, trying to fill out this form explaining where
your call originated, where it was terminating, you know, it is
onerous and it is difficult. So I do think some more data and
transparency will help a great deal.
Senator Klobuchar. Very good.
Ms. Sohn mentioned the copper issue. And I think we all
know there are benefits to copper, and many companies
undergoing the IP transition will continue to use copper. Many
businesses in Minnesota give services up to 220 megabits per
second over copper with a digitally bonded connection. Copper
is still valuable in the broadband network. We have a hybrid
network and we will continue to have copper into the near
future.
Could you explain maybe, Mr. James, why copper is so
valuable?
Mr. James. Oh, thank you, Senator. It absolutely is. It is
the most ubiquitous type of facility that is out there, and it
is capable of handling up to 100 megabits of capacity. It is
highly reliable. It is DC powered. The other things that are
very important about that is the technology continues to grow
the value of copper. So that it now provides all kinds of
different applications particularly for small-and medium-sized
businesses because it reduces their cost. And so the Ethernet
over copper is continuing to expand in our industry. And it is
similar to all the capabilities to fiber in many ways. It can
offer video content over it, triple play. So copper is a very
valuable part of our network, and it is the most crucial last-
mile connection because it is so universal. And many of our
members who deploy fiber still rely on copper for multi-
location businesses where they are off-net. It is very
powerful.
Senator Klobuchar. A somewhat related issue, Mr. Gardner, I
appreciated the support USTelecom has given to the bill that I
have with Senator Graham and Senator Schumer and Senator
Hoeven, which makes it an explicit Federal crime to steal metal
from critical infrastructure. We have seen a vast increase in
the number of metal thefts in our State. Some companies,
electric companies, being preyed upon six, seven times. Bronze
stars in veterans' graves being taken. And so I know this is a
concern for telephone companies as well as really all
businesses. And I just wanted to note that bill if anyone is
interested in looking at it. We are moving it through the
Judiciary Committee.
Ms. Sohn?
Ms. Sohn. I just wanted to make the Subcommittee aware that
there are, I believe, two petitions pending in front of the FCC
asking whether when incumbents give up their copper or leave
their copper in the ground, whether competitors should have
access to it either for free because, of course, taxpayers have
already paid for it or at a reduced price. Again, that has been
pending since, I believe, 2007. I think with this transition,
that is something the FCC should look at like sooner rather
than later.
Senator Klobuchar. OK, good.
My last question on rural broadband. I think we know it has
not expanded as rapidly as we had hoped even though there have
been improvements. The Universal Service Fund and the support
from loans made by the Rural Utility Service are important
tools for supporting broadband expansion. They have been used
in my State. Several of you mentioned in your testimony--I also
find it troubling that the RUS Broadband Program only loaned 37
percent of the money that Congress has appropriated to it.
Ms. Bloomfield, in your view what is holding back
investment? What does it mean specifically for states like
Minnesota that have a very short construction period as the
winter looms?
Ms. Bloomfield. It is an excellent question, Senator. It is
the regulatory uncertainty that is hanging over these carriers
that because of the fact that the way the quantile regression
analysis works, the cap is done on an annual basis. So you have
no idea year to year what your return is going to be. So folks
are feeling really paralyzed about do I put money in the
ground, do I go ahead and make this. You know, I have a fiber
to the node plan or a fiber to the home.
We actually did a survey and found that 68 percent of our
member companies have chosen to either stop or to slow down
their construction progress. And you know, at a time where
there is more and more demand for broadband, the capacity needs
to be greater, there is more data that is writing over it, it
is a frustrating development to see. But I think they are
looking at it thinking I am not sure I can repay this loan. So
how do I take out a loan?
And we are seeing the same on the regular RUS lending
program on the telephone side as well as the broadband side.
They are just not going in. And not only are they not going in,
those that are going in are having a harder time getting loans
approved because even RUS is unable to assess their credit
worthiness because they do not know what their revenue stream
is going to be in the following year. So it just becomes a very
vicious cycle.
Senator Klobuchar. Very good. Thank you, all of you.
Senator Pryor. Thank you, Senator Klobuchar.
Senator Fischer?
Senator Fischer. Thank you, Mr. Chairman.
If I could, Ms. Sohn, follow up a little on the call
completion that Senator Klobuchar brought up in her
questioning. In your opinion, what actions do you think
Congress or maybe the FCC can take in order to continue to
address this problem?
Ms. Sohn. I think the most important thing that Congress
and/or the FCC can do is to make sure that they have the
authority to make sure that rural residents get their calls
completed. So once the public-switched telephone network goes
away, away with it goes the FCC's ability to do anything. As it
is, they have authority now and it is still taking them
forever. But again, once this transition is complete, they do
not have the power under the law--they will not have the power
under the law to fix a horrible problem like this.
And I thank you and Senator Klobuchar and the other
Senators, Senator Pryor for that resolution.
So that is the single most important thing that Congress
and/or the FCC can do, is to ensure that they have the ability
to protect rural residents.
Senator Fischer. Thank you very much.
Ms. Bloomfield, as you know from past hearings, I am very
concerned about the regulatory uncertainty that is out there as
well. And you just addressed part of that with the quantile
regression analysis.
Can you expand on the mechanism that your organization
proposed to replace that?
Ms. Bloomfield. So absolutely. Thank you.
I think there is are a few things, and you have 50
independent carriers in the state of Nebraska. So you have got
a lot of folks covering a lot of territory out there.
So there are a couple of things I think. You know, you have
got the quantile regression analysis, and the problem is it is
now in place. So I think 2 years ago we had our own proposal,
but right now I think we have to look at this and think can we
fix it, can we eliminate it, can you stretch out the cap so
that instead of every year they are recalibrated, you have a
longer period of time, or can you use them as a trigger. And
again, it is kind of the art of the possible. You know, is
there a way to make that work to eliminate some of that
regulatory uncertainty?
So I think that we are working really hard with the FCC to
make sure the data is correct. We are having issues with that,
getting that in place. I think there are also things that we
need to be looking at like how do you get some of the things
like the safety net additive dealt with. How do you deal with
the waiver process so it actually works for carriers? How do we
do things like--there is a further notice that is out there
from the FCC that is looking at changing rate of return. It is
piling on when these carriers do not even know what the impact
is going to be. Having that rate of return proceeding hanging
out there is another factor that is just creating more of that
uncertainty.
And an issue that I know that we have discussed before is
USF contributions. You know, if you deal with contributions,
can you look at the entire Universal Service mechanism a little
bit more holistically? I think all of those would help a lot.
Senator Fischer. Do you think you are moving forward in any
way with the FCC on making any of those changes that you are
recommending?
Ms. Bloomfield. We are hoping. We are having a lot of
discussions. Our team is in there every day. We have probably
filed about 400 pages worth of suggestions and commentary and
feedback and analysis. We just continue. You know, that is
where a lot of this action is taking place at this point in
time. But I think congressional involvement and oversight is
incredibly critical.
Senator Fischer. I hope you will keep my office up to date
on how that is moving forward.
Also, you mentioned that the waiver process is inefficient.
Why do you believe that this application process is so
cumbersome?
Ms. Bloomfield. It is very difficult. The process is
cumbersome enough that folks actually have to hire legal
counsel to do it. There is a pretty high filing fee, and once
you get into the process, it is hundreds and hundreds of pages
that folks have to be able to document, get all of their data
from their companies to submit. And to date, to be very frank,
we have not really seen very many approved. So folks are
willing to go through this because they are under such duress,
but at the same time, there is no end result that kind of shows
that the data they have put forth has made any difference. So I
think a lot of carriers are looking at it thinking I do not
have $100,000 to spend on a filing process and, at the end
result, not get any relief. So it is really kind of putting
folks in a very tough position.
Senator Fischer. Thank you. I look forward to working with
you on those issues.
Ms. Bloomfield. Thank you.
Senator Fischer. Thank you, Mr. Chairman.
Senator Pryor. Thank you.
Senator Blumenthal?
STATEMENT OF HON. RICHARD BLUMENTHAL,
U.S. SENATOR FROM CONNECTICUT
Senator Blumenthal. Thank you, Mr. Chairman.
I would like to ask a question relating to legislation that
I have joined Chairman Rockefeller and Senator Klobuchar in
introducing, the Fair Telephone Billing Act of 2013. And as you
know, the bill would prohibit wireline telephone companies and
other providers from placing third party charges on telephone
bills, ``cramming'' as it is popularly known. And this issue is
one of great concern, I think, across the country, spreading
ramifications. The FCC is currently considering strengthening
its rules that address cramming for landline services and
extending those rules, which I hope it will do to wireless.
Let me begin. Ms. Sohn, what do you think about extending
the FCC's cramming rules to include wireless and other
services?
Ms. Sohn. We absolutely agree with you and we thank you and
Senator Rockefeller for your leadership on this.
I mean, cramming practices are no less horrible on wireless
and voice over IP technologies than they are on wireline
technologies. Consumers do not get any less hurt.
Again, to repeat myself a little bit, while the FCC now can
probably do something about it and they should if Congress does
not act, once the PSTN goes away, then the FCC's ability to
deal with something like this goes away. And it does not matter
what the technology is. People can talk about copper, fiber,
IP, what have you. It is about the social goals. It is about
the needs of our society and whether we are going to leave
anybody behind.
Senator Blumenthal. Any of the other panelists have views
on that issue?
Mr. James. Senator, I would just say we agree with you that
it is a difficult practice. And we will take a look at the
legislation and see if we can work with you on it.
Senator Blumenthal. I would appreciate that, and the same
with other members of the panel because I do think that there
is really no justification for this practice. I think everyone
would agree except for the extreme outliers who engage in it.
And I do hope that we can extend and strengthen these measures.
Let me ask also again beginning with Ms. Sohn. What
consumer problems do you think are most pressing in this area
when we look at extending protections that copper wire enjoys
right now or strengthening those protections? In your
testimony, you note credit card trouble, 911 access. Are those
the principal ones? And again, I am going to ask the other
panelists to follow you.
Ms. Sohn. Well, many of them are important, but what is
more important than the ability to make a 911 call to make sure
that if, God forbid, your husband has a heart attack, that you
can get through to an ambulance? There is really nothing more
important than that. And similarly that first responders can
also use the network. That is critical. And medical alerts.
People on Fire Island reported that their Life Alert would not
work with Voice Link. Anything that deals with life and death
is the most important thing in the world.
But, look, small businesses in Fire Island are suffering
because credit cards cannot go through, because faxes cannot go
through. I know people say, oh, fax. That is so old-fashioned.
But, you know, lawyers depend on that, you know, to get
documents and things like that. So there are many, many things.
Again, that list I think is a good start of items that people
need functionality from their networks to do it.
And again, it does not matter what the technology is. What
matters is that people have essential services that protect
their ability to speak, to engage in economic life, and frankly
to live a good life.
Senator Blumenthal. Any of the other panelists?
Mr. James. Yes, sir. Senator, we could not agree more that
the last-mile connection is the bottleneck for us to be able to
provide competitive alternatives to customers, and without it,
they are isolated from that availability of choice to vote with
their feet, to pick a provider that they think is providing the
quality of service or the types of services that they require.
And that is essential. Over 60-plus percent of the buildings in
the United States that have 20 or less employees have only
copper as the only connecting facility. And so it is essential
for customers to be able to have that alternative, and for our
members to be able to stay in this market, it is a requirement.
Senator Blumenthal. Thank you. Thank you very much.
Senator Pryor. Thank you.
Let me start, if I may, with Mr. Gardner again, and that is
in your capacity as running the phone company Windstream. We
have talked about copper versus IP and all that transition.
Give us a feel for how your company is making that transition
and where you are in the process and how you feel like that is
going.
Mr. Gardner. Well, I think, Senator Pryor, that is a very
important issue for us at Windstream. We are both, as I said,
an ILEC serving many rural customers across America and also
one of the largest competitive players in the industry. Like
many of the companies in this country, we are deploying IP
technology very rapidly into our network.
I made my comments on the residential market. I think it is
important to note also, on the rural side, that copper is often
associated with customers out in the most rural areas. And the
public-switched telephone companies are still providing the
bulk of the services. In fact, Windstream has already built out
broadband to 93 percent of all of our customers. For those most
rural customers, often we are the only alternative out there as
it relates to high speed Internet. So that is very important.
On the enterprise side, we have been deploying IP. We want
to be in a position to serve some of the biggest companies in
the country. Windstream today serves 80 percent of the Fortune
500, and all of our technology going in that side of the
business are new soft switches, IP technology.
So I think that as we look at this issue nationally, we
just have to have a balanced approach to this transition,
understanding that different companies have different business
models because of the cap structure, where they are located, et
cetera.
Senator Pryor. Mr. James, let me ask you. I know you want
to follow up on that, and I want you to. But I also want to ask
you about this trend where states are deregulating when it
comes to IP, and I think there are maybe 25 states or so that
have done that now. I would like to get your thoughts on that
and what the proper role of State regulation is in all this.
Mr. James. Certainly, Senator. Just as a follow-on to the
comments just made, IP managed voice is agnostic to whether it
is over copper or fiber. So those are separate issues.
As to the states that you mentioned, there are roughly 23
to 25 states that have deregulated retail residential services
or retail services but have protected the wholesale obligations
that are under the 1996 Act. And so we have seen that trend in
those states.
Senator Pryor. Is that a good thing?
Mr. James. I think the markets between residential and
business are different because people can choose multiple modes
of how they want to communicate or conduct their business,
their social life, and such, whereas businesses that are
relegated to a location who have to have quality hardline
services to be able to receive and get calls and make calls to
their customers like a local hardware store or, for example,
like Walmart or any of those kinds of services--they need to
have reliable service. That could also be offered by IP
technology, but it would have the same quality of service
standards that would be under the interconnection that we
currently have under the TDM network. And that is what we are
asking for, is that that same types of standards and network
architecture be developed and agreed to by the carriers using
just a different way of exchanging that traffic.
Senator Pryor. Great.
Ms. Bloomfield, let me ask you one follow-up to what
Senator Klobuchar and Senator Fischer were talking about with
the call completion, especially in rural call completion. Does
that have anything to do with this transition to all IP
networks? Are those totally unrelated?
Ms. Bloomfield. You know, it is a clear example of why we
really do need rules of the road. I know my fellow panelists
have talked a lot about you are really just changing a
switching technology. It is not really a magic switch goes off
and suddenly we have a whole new network.
So part of it is no matter what you do, you need to be
looking at what happens to consumers. What happens to public
safety. How do you ensure what happens in competition? How do
you ensure that those safeguards all stay in place? So in a lot
of ways, the call completion issue is a perfect example of what
could go wrong if you are not looking at the transition in,
again, kind of a surgical, piece-by-piece way that ensures that
those guideposts are maintained.
Senator Pryor. Thank you.
Now, we are delighted to have with us our freshman Senator
from the state of Massachusetts.
[Laughter.]
Senator Pryor. He is number 100 in seniority. I used to be
number 100 in seniority. And the great thing about him is he
has 37 years of experience in the Congress. We understand
historically that he is the record holder of the longest tenure
in the House to come to the Senate, and we are delighted to
have you. I would invite Senator Markey to ask questions.
STATEMENT OF HON. EDWARD MARKEY,
U.S. SENATOR FROM MASSACHUSETTS
Senator Markey. Thank you, Mr. Chairman, very much, and
thank you for that warm welcome. It is great to be here. I am
looking forward to learning a lot about these
telecommunications issues.
[Laughter.]
Senator Markey. So when I started, there was one phone
company. It had 1.2 million employees and there were no
competitors. That is my first hearing back in 1977. And this
hearing really could not happen because there would be no other
witnesses. And so we have come a long way and we have to
continue to have discussions about this very dynamic area.
My bottom-line philosophy always has been that the whole
key to this goal that we have to ensure that America is number
one looking over its shoulder at number two, three, four, five
in the world is that we have to constantly be introducing
Darwinian paranoia-inducing competition into the marketplace.
And that is ultimately the key protection for our consumers on
the one hand because they have more choice and it is also the
key for the creation of the new jobs here in America because we
are the innovation center and not some other place in the
world.
So that is kind of our challenge and we have to do it with
consumer protection, with reliability, with Universal Service,
with all of the old principles. So as you move to new
technologies, you cannot leave behind old values. They have
served us very well and ultimately competition is a part of
that mix in a very big way because consumers are beneficiaries.
So I guess what I would ask is--I will start with you, Ms.
Sohn, if I could--to talk a little about this issue of a
migration toward wireless and kind of the sense that some
people have that if we continue that migration towards mobile
phone usage, that is a big reason why we should have less of a
concern about the protections that are built into the 1996
Telecommunications Act for wireline. How do you view that
issue?
Ms. Sohn. So at the risk of sucking up to you, Senator
Markey, it is wonderful to see you on the dais. Welcome.
So my response to that is 141 million users still rely on
wireline services, both copper-based phone services and managed
VoIP. And as USTelecom says itself, 99 percent of video, nearly
99 percent of data still comes over wireline. So wireline is
still king, and there are many places, particularly in rural
areas, where mobile just does not work.
The other thing--I think this is really important--is
wireless technologies depend on a wireline backbone. It is
coexistent with wireline. So we really, really have to make
sure that our wireline systems are built out particularly in
rural areas. So wireline is not going away anytime soon, and
the protections that wireline brings----
Senator Markey. So what could be an unintended consequence
of removing wireline protections from your perspective?
Ms. Sohn. As I mentioned before, mobile does not have
reliable 911 connectivity. You cannot use your alarm systems.
Many alarm systems do not work with mobile. Medical alerts do
not work with mobile. There is a wide variety of functionality
that wireline has. And as I said before, wireless does not work
in many, many places or it does not work well. And we are
seeing more and more stories of people complaining that they do
not have good connectivity. In fact, there is an appendix in my
testimony that lists 18 of hundreds of them.
Senator Markey. Mr. James, do you believe that local
competition rules need to stay in place, that they are still
necessary even as we move to more of an IP-based phone system?
Mr. James. Absolutely, Senator. We believe that the 1996
Act is technology neutral, and the fact that we can progress to
the IP transition, just like we have done with other
transitions in the network, also access to last-mile facilities
is essential. Without the wholesale side of the industry, there
is no real retail competition, and competition is the best
protection for consumers to be able to have multiple companies
who have the ability to offer services that you want to buy at
a value price and utilizing the network that can be available
to them. That is why it is so important for copper to be
accessible, and we are continuing to deploy our own facilities
but we do need those tenets of the 1996 Act.
Senator Markey. So you are saying that copper is a way of
ensuring that there is real access, that there is competition,
that there is a way for smaller companies to be able to
compete.
Mr. James. Absolutely. It is very extremely valuable. The
technology continues to improve. We are up to 100 megabits. We
have extended distances. We now have vectoring. There is all
kinds of technology development that shows that copper has a
greater value today than it did 2 years ago, 3 years ago. It is
amazing what is being done with that technology.
Senator Markey. And that is because you can enhance the
capacity for copper to be able to deliver digital services.
Mr. James. Exactly. And if the recent case of the storm in
New York where all the copper was removed from two central
offices--our member companies lost their investment that was
embedded in those central offices, could not offer the advanced
services that they were offering over Ethernet copper to their
customers. So they were disconnected from all their customers,
could not reconnect to them, and those customers had to find an
alternative because our members could not reach that
connectivity because of the alternative that was offered to
them by the carrier at that time was a boxed service which
could not be added services on top of that the business
customers really wanted to buy.
Senator Markey. So what you are saying is that as those
competitors are removed from the market, then there is less
pressure to improve the service.
Mr. James. Exactly.
Senator Markey. And that the incumbents would be providing.
You need that competitive dynamic in order to ensure that there
is a constant upgrade so that customers have choice. When you
remove the competition, you remove the likelihood that there is
an upgrade.
Mr. James. And in that instance, our members were relegated
from being advanced technology companies of offering enhanced
services to just resellers, and that is not what they wanted to
be. They added that value through what they installed, what
they risked their financial resources in order to provide to
those customers.
Senator Markey. Thank you.
So, Ms. Sohn, can you follow up a little bit on what Mr.
James is saying?
Ms. Sohn. Well, look, nobody benefits more from competition
than consumers. Competition lowers prices. It improves
services. Look, I am old enough--we are both old enough--to
remember a time where there were 6,000 competitive ISP's, and
each American had a choice of 13 different ISP's, Internet
service providers. That was a great time. Unfortunately,
because the U.S. has exported many of its competitive policies,
we really have a shrinking competitive market. And I think in
this new IP transition we need to see whether we need to expand
our competitive policies not shrink them.
Senator Markey. Mr. Gardner, could you comment on this?
Mr. Gardner. Yes. I think it is very important. You raised
a point that I think is--one of the things as we look at next
generation regulation--and you asked earlier what do we think
about wireless technology, et cetera. There is no doubt
wireless is an incredible technology that has opened up many
opportunities for all of our customers in this country.
But, again, as CEO of a wireline company, just to remind
everyone of the criticality of our infrastructure, this year
Windstream and many members of the United States Telecom
Association have invested hundreds of millions of dollars
building fiber out to cellular towers. So we are a critical
part of that infrastructure.
And then as you look at the limitations that wireless has
related to spectrum, WiFi is so critically important going
forward.
So I would just ask that as you think about the new world,
do not forget that wireline is still a critical part of the
infrastructure.
And as we think about the transition, with all the
transitions I think our regulatory policy has worked well. The
world is changing. We just ask that you be balanced and manage
this transition carefully and understand that different
companies are at different places in terms of this migration.
Senator Markey. Yes. When you are creating policies, you
just want to make sure that certain companies are not
vindicated posthumously.
Mr. Gardner. Yes.
[Laughter.]
Senator Markey. That the policy did not work. You want to
think through the policy so that in fact you are ensuring that
as you are opening up a new world, you are not accidentally
destroying something which was a vital part of the fabric of
the communications system.
Ms. Bloomfield, could you? Again, I am sure that the
Chairman has already talked about the rural aspects of this.
But when we were doing the 2009 stimulus bill, we built in
billions of dollars into the stimulus bill in order to ensure
that there would be greater funding for the rural aspect of
this broadband revolution. Could you tell us how that has
worked so far from your perspective?
Ms. Bloomfield. So it was a great initiative by the
administration and I think their emphasis on broadband is
critical because we all know every one of us would attest to
the economic impact it has on our society and on the economy.
The problem has been--you missed my whole story on
Universal Service.
Senator Markey. I am sorry.
Ms. Bloomfield. I would tie together for you why it has
actually been probably not as successful. We are actually
really struggling to get a lot of our members to finish their
stimulus buildouts because they are very concerned about the
regulatory uncertainty that has been created by the FCC's
Universal Service Intercarrier Comp order. So they are actually
not using that funding. We have got a lot of pressure to get
them to try to use that funding. They have got one more build
year to do it. Those carriers that are in areas like
Massachusetts have a very short build season. And I think they
are feeling stymied by it.
So I think there have been some great initiatives.
Broadband is very important in rural areas. In some ways it
bridges that distance, that handicap of distance that is even
more important.
Senator Markey. So I would like to work through the
chairman to work with you. Perhaps maybe we can make sure that
policy works correctly.
Ms. Bloomfield. That would be great. Thank you.
Senator Markey. Mr. Chairman, Mr. James would like to add
30 seconds, if you could.
Senator Pryor. Yes.
Mr. James. I just want to say that when Verizon was
entering the Europe market as a new entrant, they had in their
filings to the regulatories--this is a quote--continued
regulatory controls must remain in place to safeguard access to
the necessary wholesale inputs and thereby support competition
to the benefit of customers. Prices of these core access
products should be as low as possible in order to facilitate a
genuinely competitive marketplace and drive down the prices for
customers. It is clear that the most effective way to achieve
that is to ensure that the operators who have significant
market power in the relevant markets adhere to strict price
controls.
Senator Markey. So your point is where a big company is an
entrant as a new competitor, they want competitive principles
in place, but where an incumbent is already there, their views
toward competitive policies are not nearly as enthusiastic.
Mr. James. Yes, sir.
Senator Markey. And I thank you for that.
[Laughter.]
Senator Markey. And, Mr. Chairman, I would yield back the
balance of my time.
Senator Pryor. Thank you, Senator Markey. It is great to
have you here.
I want to say to all of the panelists I actually have some
more questions, as do a couple of other of our colleagues, but
I think what we will do is just submit them for the record. We
are going to leave the record open for 2 weeks. We would
encourage all the Senators and their staffs to get the
questions to the Committee as soon as they can. We will try to
send those out to the panelists, and we would love for you all
to respond to those. But we will keep the record open for 2
weeks.
With this, what we will do is we will conclude the hearing.
But I do want to thank the panelists for coming and your
preparation and your hard work to get here, and we appreciate
all that you do. And we hope that we will all keep talking.
Again, Senator Markey, it is great to have you with us
today.
So with that, we will conclude the hearing. Thank you.
[Whereupon, at 1:31 p.m., the hearing was adjourned.]
A P P E N D I X
Prepared Statement of Hon. John D. (Jay) Rockefeller IV,
U.S. Senator from West Virginia
Today's hearing on the state of wireline communications affords us
an opportunity to take stock of the nation's public telephone network.
That network is a source of National pride and ingenuity, and remains
the envy of the world. In fact, one could argue that the public
telephone network is a victim of its own success; we only notice the
value of this network and its reliability and resiliency when we are
forced to compare other communications networks to it.
The principle of ``universal access'' to communications is one of
the basic tenants of the Communications Act of 1934, and it remains as
vital today as it was then. We have reached out and covered nearly
everyone--in urban, rural, and even many of the most remote areas of
the world based in part to our nation's fidelity to the principle that
all Americans should be able to benefit from the opportunities afforded
by access to communications. We must continue to make sure that
everyone has available to them the advantages that come with access to
modern communications networks.
The nation's wireline infrastructure is at the heart of this
nation's communications system and policy. Not only does our public
telephone network provide a vital voice, data and video service to our
Nation's citizens and businesses, it is the backbone on which the
nation's wireless networks also rely. And allows a consumer in a remote
part of West Virginia to pick up the phone and reach anyone in the
country.
The success of the nation's telephone network was not fortuitous.
It came about by a tremendous amount of private investment and
innovation and because of sound policy decisions, rooted in the
fundamental principles of the Communications Act of 1934, and later the
Telecommunications Act of 1996. And as Americans begin to benefit from
the next evolution in wireline technology, I remain convinced that
smart regulation and strong consumer protection is as necessary today
as it was when the Communications Act was passed almost 80 years ago.
Rural consumers should not be left behind in this transition. They
must have access to next-generation high-speed broadband services. The
need for access to advanced broadband networks throughout the country
is one of the reasons I believe it is time to strengthen the E-rate
program. As I said last week, basic Internet connectivity is not
sufficient to meet our children's 21st century educational needs.
Bringing next-generation high-speed broadband to schools and libraries
in rural as well as urban areas is essential to affording students
access to tomorrow's digital education technologies and services.
As we look to the future, we must make sure that comparable
communications services are available at comparable rates for everyone
in this country, no matter who they are and no matter where they live.
Even as networks evolve and as companies upgrade their technology, the
principles undergirding decades of communications law and policy
remain. And it will be up to Congress and the states to make sure that
all communications companies comply with the underlying foundations of
universal access, consumer protection, competition, and public safety
enshrined in our nation's communications laws.
I look forward to the testimony from our witnesses today and to
their perspectives on the state of wireline communications in the
nation, the challenges facing their companies, and how we can achieve
our collective goal of bringing advanced communications services to all
Americans.
______
Response to Written Questions Submitted by Hon. Mark Warner to
Jeff Gardner
Question 1. With respect to the coming IP transition and advancing
technology, which specific requirements from the Telecommunications Act
of 1996 are the most important to maintain to ensure fair competition
in the marketplace?
Question 1a. For example, the 1996 Act has clear interconnection
requirements. Do you believe that these provisions are technology-
neutral and should apply in an IP-based network? If not, please explain
why not.
Answer. As I stated in my testimony, communications technology and
the competitive landscape of the telecommunications industry is
changing rapidly. This places tremendous pressure on the regulatory
structure to remain sufficiently flexible to adjust to these changes in
a timely fashion. As is evidenced by my own company, which is both an
incumbent phone company and one of the largest competitive phone
companies, the industry structure is increasingly complex with fewer
and fewer ``one size fits all'' solutions. It is therefore essential
that we work together to update rules to a pro-consumer, pro-
competitive framework for the information age.
As the industry--including wireline, cable and wireless companies--
moves forward in its deployment of new IP-based technologies, core
policy issues will continue to be important. These include issues such
as interconnection, competitive access, transport, privacy, and public
safety. As policymakers evaluate the proper regulatory framework for
such issues in the course of the IP transition, USTelecom believes it
is important to properly balance the policy goals of regulatory parity
among competing platforms, promoting investment in next-generation
network facilities, avoiding competitive harm, and protecting
consumers.
Question 1b. How important is it to maintain the legacy/copper
communications network as we transition to IP? If so, for how long? If
not, please explain why not.
Answer. As you correctly note, the shift to IP-based services is a
transition, not an event; all communications companies are deploying IP
in their networks, and the transition is unfolding in different ways
and at different times for each provider. For example, various
providers are delivering IP-based services over fiber, copper, coaxial
cable and wireless facilities. Therefore, it is most important for
policymakers to avoid imposing a one-size-fits-all approach to this
transition. Rather, policymakers should be focused on facilitating this
transition by minimizing regulatory impediments while at the same time
ensuring protections for consumers and competition. This balanced
approach applies equally to the replacement of copper facilities. To
achieve this balance, policymakers and the industry will need to forge
a consensus on how we can restructure regulatory obligations in a way
that provides consumers and businesses with all the benefits of the
Information Age.
Question 2. Reform of the Universal Service Fund (USF)/creation of
the Connect America Fund (CAF) is critically important because millions
of Americans still lack access to high-speed broadband service in many
areas of the country. According to the National Broadband Plan,
broadband is available in 98 percent of the nation, but the national
adoption rate, according to the National Telecommunications and
Information Administration (NTIA) and Census data, is 72 percent. I
believe it is important for all Americans to have access to high-
capacity broadband service, and therefore, I am focused on policies
that help us to reach 100 percent coverage of U.S. households. However,
we have a limited amount of money that we can allocate as a nation to
rural broadband deployment, and I believe we should prioritize funding
to support buildout in unserved areas or areas below 4 mbps down/1
mbps. Typically, these areas are still unserved because of the high
cost of deployment and the low population density. Understandably, this
makes it difficult for private companies to deploy broadband in these
areas, and it is also the reason why policymakers decided to create
programs like USF/CAF--to serve hard-to-reach places in the country.
Question 2a. Do you believe CAF is adequately focused on broadband
deployment in unserved areas? If so, how long do you think it will take
to reach full deployment? If not, please explain what it would take to
buildout unserved areas of our country given that we only have
approximately $4.5 billion/year through USF.
Answer. The FCC's CAF program is limited to larger
telecommunications providers known as price cap carriers. The CAF
program is focused on supporting the construction and operation of
robust broadband and voice networks in areas served by these companies
where there is no private business case to provide service. The program
properly recognizes that support is necessary in these areas both to
build and maintain networks. The program further limits funding to only
those areas where there is no unsubsidized competitor.
The cost of full deployment remains unquantified, despite some
preliminary efforts made during development of the National Broadband
Plan and later by a coalition of price cap companies. Even by the FCC's
own rough estimate, reaching all unserved consumers will require much
more funding than is currently available in the CAF and may require
technologies other than wired broadband. In the absence of a precise
estimate, we do not know how long it will take to reach full deployment
at the rate of $4.5 billion a year. It should also be noted that a
percentage of that funding will be necessary to sustain operation of
the phone network in high-cost areas and also high-cost locations that
already have broadband (and will require investment, as network demands
have increased steadily year-over-year).
At a high level, the vision of the Connect America Fund is,
beginning with a 5-year phase, to deploy 4/1 broadband speeds as widely
as possible, given that budget constraint. Areas served by price cap
companies that are so remote and costly to serve that they exceed an
upper cost threshold that the FCC will establish can receive support
under the separate Remote Areas Fund.
Neither USTelecom nor the FCC believes that a 5-year Connect
America Fund will address all rural broadband needs in areas served by
price cap companies. There are significant issues yet to be resolved
with regard to that 5-year phase, as well as what comes next. We
appreciate your interest and engagement and will need more of it.
Question 2b. Is the pace of reform moving too slowly?
Answer. Certainly price companies and our customers feel a sense of
urgency to extend broadband into more of rural America. Ultimately,
reform may produce more investment capital for rural deployment in
price cap areas, although many significant issues remain unresolved. We
urge the Commission to take the time necessary to do the job right, but
we would note that development of CAF-2, the permanent funding model
for price cap areas, has fallen behind schedule. Meanwhile, other key
aspects of reform have progressed rapidly: The high-cost program is
operating on a flat-line budget, and intercarrier compensation is being
eliminated. Phasing out the implicit subsidies from intercarrier comp
is reducing support for high cost networks, both in price cap and rate-
of-return areas, by billions of dollars.
Question 3. Based on my experience in Virginia, it is not possible
to deploy fiber absolutely everywhere. Many areas of my state have
granite rockbeds, which make it prohibitively expensive to deploy
fiber. Therefore, I am supportive of cost effective deployment of
broadband technology to reach universal coverage. Although I recognize
that the focus of this hearing was on wireline issues, it seems to me
that we should consider the best technologies based on our national
goal of providing advanced communications services to all Americans.
Question 3a. Should the Federal Communications Commission (FCC)
focus more resources on best-available technology for unserved areas or
areas below 4/1? If so, please explain what else the FCC could do to
improve broadband coverage to unserved areas. If not, please explain
how we can reach full broadband deployment by focusing more on fixed
services, at a reasonable cost to taxpayers and consumers.
Answer. Every aspect of universal service is resource-constrained,
and the FCC has made a commitment to operate within a $4.5 billion
annual budget. In light of the elimination of intercarrier compensation
revenues and the formidable amount of work ahead, it is important that
support for funding broadband and voice service in high cost areas not
be further eroded. The FCC and our industry have focused considerable
effort on designing a cost model that will accurately estimate the
forward-looking costs of providing broadband service over the most
efficient network. That cost model will play an important role in
allocating support and ensuring that support is tailored to the costs
and obligations of providing robust broadband in high-cost areas. I
believe that wireline is the most robust and cost-effective broadband
network option in terms of bandwidth, latency, reliability, and
scalability for the vast majority of locations in the Nation. That
said, USTelecom believes the FCC's plan to support deployment of
alternative technologies via a Remote Areas Fund is a practical second-
best solution, in light of budget constraints, to reach the very
highest-cost locations.
Question 3b. Please describe what role you see for other
technologies in terms of serving hard-to-reach areas in the near term.
Could we be more technology-neutral in our Federal broadband funding
programs?
Answer. As I described in my answer to the previous question, I
think there is a role for satellite or fixed wireless in the very
highest-cost areas. In addition, the FCC is supporting the provision of
mobile service through a separate Mobility Fund. Finally, the FCC is
operating in a technology-neutral manner now, as it is planning a
competitive bidding process that would be open to all fixed terrestrial
technologies, including DSL, fiber, cable, and fixed wireless.
Question 4. Would more targeted broadband mapping--at the address
level, specifically--help to accelerate deployment to unserved areas?
If not, please explain why less granular data models are sufficient to
target deployment to unserved households. Do you believe the current
level of data gathered by the National Broadband Map contributes to
overbuilding? If not, please explain.
Answer. Accurate data is important to thoughtful policy-making, and
USTelecom members, including Windstream, continue to work on providing
updated, granular data for inclusion in the National Broadband Map.
Given that the NBM is informing important policy decisions, including
the distribution of universal service funding, it should be a priority
to ensure that broadband service providers are using the same
methodologies for submitting data and--in light of the fact that the
NBM is based on self-reported data--are providing data that accurately
reflects existing service.
As your question recognizes, more targeted reporting would not
serve to accelerate deployment in the 95 percent of locations in the
U.S. that are already served by fixed broadband. Even in unserved areas
of the country, however, targeting broadband mapping at the census
block level--the current level of granularity of the NBM--is
appropriate. Because broadband service providers base deployment
decisions on the costs of multi-location projects or routes, it is not
useful to target broadband mapping at the address level. Moreover,
requiring the collection of household-level data would place a
substantial burden on providers and require them to divert resources
toward administrative matters and away from broadband investment, thus
undermining the goals of universal broadband availability. Targeting
the collection of mapping data on the census block level strikes an
appropriate balance, providing sufficiently granular detail while
minimizing the burden on providers.
Question 5. As many experts have noted, there is ``rural-rural
divide'' when it comes to the presence of broadband infrastructure in
rural America. According to the FCC, more than 83 percent of the
approximately 18 million Americans that lack access to residential
fixed broadband at or above the basic level of acceptable service
outlined in the National Broadband Plan live in areas served by price-
cap carriers. The FCC attempted to address this disparity by
establishing an incremental support component in the Phase I CAF Fund
for price cap carriers. The initial support was established at $300
million, but more than half of the allocated funds went unclaimed.
Different types of carriers have expressed opinions about whether or
not it was a good idea for the FCC to set aside this amount of money
even though the bulk of the $4.5 USF program was allocated to other
types of carriers.
Question 5a. Regardless of your views on the Phase I Fund, do you
think the FCC has done enough to provide coverage to the 14.9 million
people who still lack any sort of basic broadband service?
Question 5b. If so, when do you think we can expect to provide
broadband service to all Americans? If not, what else could the FCC do
to provide universal broadband service?
Answer. See question #2. If I am missing the point of your
question, I would be happy to arrange a meeting with you or your staff.
Question 6. There has been a great deal of discussion about the
FCC's models for CAF. Given that technology is advancing at a rapid
rate, it seems like the FCC should be focused on establishing a cost
model that is updated frequently enough to provide an accurate sense of
the marketplace. How important is the timeliness of the FCC's proposed
cost model in delivering service to unserved areas?
Answer. USTelecom has long urged that an essential feature of CAF
in general, and of the Connect America Cost Model (CAM) in particular,
must be the proper alignment of funding and the service obligations
attached to such funding. The FCC's CAM is timely in that it models the
cost that an efficient provider using forward-looking technology would
incur to provide robust broadband and voice services. The FCC has
correctly adopted a multi-year support period for CAF Phase II, in
recognition that few if any carriers would undertake the enormous
upfront investment cost of building out a broadband network, especially
in rural locations where there is no business case to do so, without a
set, multi-year support period. Likewise, it is crucial that carriers
have certainty with regard to the amount of funding they will receive
over the support period and the obligations attached to such funding.
Without such certainty, carriers will be less likely to take on CAF
Phase II service commitments, which would undermine the goal of
delivering service to unserved areas.
USTelecom agrees that the CAM should provide an accurate sense of
the marketplace and the cost of serving high-cost areas, and we have
been working with the FCC to ensure that the CAM achieves these
objectives. It is our belief that a CAM that provides certainty with
regard to support amounts over a multi-year period, rather than a CAM
that is updated frequently, is most appropriately aligned with the
realities of network-building and most likely to result in the
deployment of broadband service in unserved areas.
Question 6a. Do you agree with the revisions the FCC has made to
its cost model? Does the cost model accurately predict needs/services
under CAF? If not, or if you believe the FCC model should lock in rates
for a longer period of time, please explain how a longer view would
deliver broadband to unserved areas more quickly than an annualized
model.
Answer. The development of the CAM is still underway, with many key
decisions as yet unmade. Therefore, while we are working with the FCC
and other interested parties to ensure that the various components of
the CAM work together to accurately predict the costs of serving high-
cost areas, it is too soon to say whether the CAM does or does not do
so.
As noted above, USTelecom believes the FCC correctly adopted a
multi-year support period for CAF Phase II; in fact, USTelecom member
companies advocated for a longer support period than the one ultimately
adopted by the FCC because a longer support period more accurately
reflects the sunk-cost nature of much network investment in providing
broadband services. Carriers must undertake an enormous upfront
investment cost to build out a broadband network, especially in rural
and high-cost locations where there is no business case to do so. The
longer the guaranteed period of support, the more likely carriers are
to assume those massive costs. Conversely, an annualized model, which
would not provide carriers with certainty regarding the support they
will receive to underwrite these investments, would make carriers less
likely to undertake the deployment of broadband in high-cost areas. In
this way, a longer view will deliver broadband to unserved areas more
quickly than an annualized model.
Question 7. A report by the nonpartisan Congressional Research
Service analysis captures one of the major challenges of USF reform as
follows:
``Smaller, rural, rate-of-return carriers are particularly
dependent on USF subsidies, and have expressed concern that the
reforms that the USF Order will implement could place them
under financial hardship. Many RUS telecommunications and
broadband borrowers (loan recipients) receive high cost USF
subsidies. In many cases, the subsidy received from USF helps
provide the revenue necessary to keep the loan viable. The
Telecommunications Infrastructure Loan program is highly
dependent on high-cost USF revenues, with 99 percent (476 out
of 480 borrowers) receiving interstate high-cost USF support.
This is not surprising, given that the RUS Telecommunications
Loans are available only to the most rural and high-cost areas
(towns with populations less than 5,000). Regarding broadband
loans, 60 percent of BIP (stimulus) borrowers draw from state
or interstate USF support mechanisms, while 10 percent of farm
bill (Rural Broadband Access Loan and Loan Guarantee Program)
broadband borrowers receive interstate high-cost USF support.
Thus, to the extent that USF may be reformed, this could have
an impact on the viability of RUS telecommunications and
broadband loans, and ultimately the overall financial health of
the carrier.
Although the FCC included a waiver process in its USF Order for
those carriers that felt they would be subject to significant
economic stress, due to the reforms, many smaller carriers
assert that the waiver process is too burdensome and difficult
and that the requirements for qualifying for relief are too
restrictive.''
Additionally, according to the U.S. Department of Agriculture,
demand for RUS loan funds was only 37 percent of loan funds
appropriated by Congress in FY2012. This is indicative of the fact that
the restructuring and uncertainty around USF/CAF reform could diminish
the desirability of RUS broadband loans to borrowers going forward.
Question 7a. Given that the RUS and USF broadband programs share
the goal of deploying broadband to rural America, and many RUS
borrowers appear to be significant beneficiaries of USF as well, are
these programs effectively targeted towards providing broadband to
unserved areas of the nation?
Question 7b. Are these programs the most cost-effective way for
Congress to fund rural broadband development? If so, please explain
why. If not, please share any ideas you may have regarding a more cost-
effective approach to encouraging broadband deployment.
Question 7c. Given that these two programs (USF and RUS) share the
same goals, to what extent are they duplicative and to what extent are
they complementary?
Question 7d. Do you think that the FCC waiver process, as designed
and described above, is appropriate? If so, why? If not, what changes
would you recommend?
Answer. Because Windstream is a price-cap carrier and this question
pertains to rate-of-return carriers, I have asked Walter McCormick,
President and CEO of the USTelecom Association, to respond for the
Association and respectfully request that his answer be incorporated
into the record.
[Mr. McCormick's answer follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
Response to Written Questions Submitted by Hon. Mark Warner to
Shirley Bloomfield
Question 1. With respect to the coming IP transition and advancing
technology, which specific requirements from the Telecommunications Act
of 1996 are the most important to maintain to ensure fair competition
in the marketplace?
Question 1a. For example, the 1996 Act has clear interconnection
requirements. Do you believe that these provisions are technology-
neutral and should apply in an IP-based network? If not, please explain
why not.
Question 1b. How important is it to maintain the legacy/copper
communications network as we transition to IP? If so, for how long? If
not, please explain why not.
Answer. NTCA-The Rural Broadband Association (``NTCA'') filed an
``IP Evolution'' Petition with the Federal Communications Commission
(``FCC'') arguing precisely that certain fundamental statutory
principles transcend mere technology transitions and should therefore
be promoted and sustained regardless of the protocols used within
underlying communications networks. A copy of that Petition, as filed
in November 2012, can be found in the attachment titled ``Petition of
the National Telecommunications Cooperative Association for a
Rulemaking to Promote and Sustain the Ongoing TDM to IP Evolution.'' It
explains how the FCC should undertake a thoughtful and comprehensive
review to modernize its regulations in light of technology
transitions--but only against a statutory backdrop that above all else:
(1) preserves and advances universal service; (2) promotes competition,
and (3) ensures consumer protection (which includes the need for
reliable service quality and access to public safety emergency
services). This review would include not the narrow question of how to
sustain technology neutral interconnection requirements between
carriers consistent with the Communications Act of 1934, as amended
(the ``Act''), but also a broader consideration of what additional
steps are needed to ensure that there is sufficient and predictable
universal service support so that all Americans--including those in
high-cost areas and low-income consumers--can enjoy meaningful access
to sustainable IP-enabled, broadband-capable services at affordable
rates.
Question 2. Reform of the Universal Service Fund (USF)/creation of
the Connect America Fund (CAF) is critically important because millions
of Americans still lack access to high-speed broadband service in many
areas of the country. According to the National Broadband Plan,
broadband is available in 98 percent of the nation, but the national
adoption rate, according to the National Telecommunications and
Information Administration (NTIA) and Census data, is 72 percent. I
believe it is important for all Americans to have access to high-
capacity broadband service, and therefore, I am focused on policies
that help us to reach 100 percent coverage of U.S. households. However,
we have a limited amount of money that we can allocate as a nation to
rural broadband deployment, and I believe we should prioritize funding
to support buildout in unserved areas or areas below 4 mbps down/1
mbps. Typically, these areas are still unserved because of the high
cost of deployment and the low population density. Understandably, this
makes it difficult for private companies to deploy broadband in these
areas, and it is also the reason why policymakers decided to create
programs like USF/CAF--to serve hard-to-reach places in the country.
Question 2a. Do you believe CAF is adequately focused on broadband
deployment in unserved areas? If so, how long do you think it will take
to reach full deployment? If not, please explain what it would take to
buildout unserved areas of our country given that we only have
approximately $4.5 billion/year through USF.
Question 2b. Is the pace of reform moving too slowly?
Answer. The Connect America Fund (``CAF'') is a program intended by
the FCC to implement the high-cost universal provisions of Section
254(b)(3) of the Act, which requires among other things that:
Consumers in all regions of the Nation, including low-income
consumers and those in rural, insular, and high cost areas,
should have access to telecommunications and information
services, including interexchange services and advanced
telecommunications and information services, that are
reasonably comparable to those services provided in urban areas
and that are available at rates that are reasonably comparable
to rates charged for similar services in urban areas.
Section 254(b)(5) further compels that ``[t]here should be
specific, predictable and sufficient Federal and State mechanisms to
preserve and advance universal service.''
Thus, universal service--and by extension, the CAF--must not be
merely about ``getting services out there'' to unserved areas. Instead,
by Congressional mandate, any universal service program must also seek
to ``preserve and advance universal service'' by keeping services in
all areas of the United States, and by making sure that those services
are and remain affordable. Universal service will fail in the long-
run--and the investments used to deploy broadband will be inefficient
or even wasted--if there is not a co-equal focus on sustainability as
compared to merely reaching unserved areas in the first instance. More
specifically, if networks are built, but services on them are
unaffordable or do not remain ``reasonably comparable'' to services
available in urban areas over time, then universal service has failed.
Particularly given that broadband speeds are evolving and
increasing, it is important that the high-cost USF program continue to
be seen--as it was until the past few years -as both an
``availability'' and ``adoption'' program that helps to justify both
the deployment of networks and then the use of services on them by
consumers. A network that is built merely to meet 4/1 Mbps speeds today
will become quickly outdated; the FCC has acknowledged this in
indicating that CAF Phase II recipients will be required to ensure that
their networks are capable of offering 6/1.5 Mbps speeds in several
years. Unfortunately, it appears that even 6/1.5 Mbps speeds are
already surpassed, as studies (including the ``State of the Internet''
report published regularly by Akamai) indicate that the average
nationwide use of broadband is already in excess of this speed
threshold. Moreover, given that networks are built to last for twenty
years or longer--and given that it takes at least this long to recover
the costs of deploying a network in sparsely populated, high-cost rural
areas--a forward-looking and efficient universal service policy should
aim to deploy and maintain/sustain networks that will be capable of
delivering ``reasonably comparable'' speeds for the next several
decades in lieu of clinging to quickly surpassed arbitrary speed
targets.
Such efforts will almost certainly require more resources in the
end than the $4.5 billion available under the FCC's ``budget target''
for high-cost universal service through 2017. Yet the fact remains that
small rural carriers, such as those within NTCA's membership, have
already made ``commendable'' strides (according to the Federal-State
Joint Board on Universal Service) in deploying broadband, even as their
use of high-cost USF support grew only roughly equal to the historic
pace of inflation (3 percent per year, per FCC Order 11-161). It is
also worth noting that the ``budget'' risk in the high-cost USF program
was ultimately ``a solution in need of a problem'' since, once again
per FCC Order 11-161, the overall high-cost program budget had been
declining slightly for years, even in advance of the FCC's 2011
reforms.
Unfortunately, with uncertainty arising out of the FCC's 2011
order--specifically as a result of the ``Quantile Regression Analysis''
caps and the threat of more cuts to come in a further notice of
proposed rulemaking--many small carriers have been forced to put their
investments on hold. A NTCA survey in early 2013 indicated that out of
more than one hundred small carriers responding, nearly 70 percent had
postponed or cancelled broadband network deployment projects
specifically due to regulatory uncertainty arising out of the FCC's
reforms and the threat of further cuts to come.
Thus, while more remains to be done to achieve truly universal
broadband, if regulatory certainty can be restored and a more
sufficient and predictable support mechanism put into place, it may be
possible on a reasonable budget that includes some reflection of the
fact that costs are subject to inflation over time--particularly labor
costs that represent the overwhelming portion of network deployment
costs--to re-commence the ``edging out'' of broadband in rural areas
that smaller carriers had been making prior to the FCC's reforms, and
to thereby achieve nearly universal broadband deployment over the
course of time.
Question 3. Based on my experience in Virginia, it is not possible
to deploy fiber absolutely everywhere. Many areas of my state have
granite rockbeds, which make it prohibitively expensive to deploy
fiber. Therefore, I am supportive of cost effective deployment of
broadband technology to reach universal coverage. Although I recognize
that the focus of this hearing was on wireline issues, it seems to me
that we should consider the best technologies based on our national
goal of providing advanced communications services to all Americans.
Question 3a. Should the Federal Communications Commission (FCC)
focus more resources on best-available technology for unserved areas or
areas below 4/1? If so, please explain what else the FCC could do to
improve broadband coverage to unserved areas. If not, please explain
how we can reach full broadband deployment by focusing more on fixed
services, at a reasonable cost to taxpayers and consumers.
Question 3b. Please describe what role you see for other
technologies in terms of serving hard-to-reach areas in the near term.
Could we be more technology-neutral in our Federal broadband funding
programs?
Answer. As noted in a prior response, small carriers, such as those
in NTCA's membership, have made ``commendable'' strides according to
Federal and state regulators in deploying broadband in hard-to-serve
rural areas. Still, there is more clearly to be done to upgrade many of
those networks to ensure they remain ``reasonably comparable'' over
time with services available in urban areas. To date, NTCA members have
utilized every possible tool available to them to provide broadband,
leveraging a mix of fiber and copper, coaxial cable, and wireless
technologies to reach consumers. In fact, NTCA estimates that nearly
half of its members hold some spectrum assets, and it is our
understanding that some of those carriers have used fixed wireless to
reach some portion of their customers where other technologies were not
yet feasible.
This being said, it remains clear that fiber networks remain the
best, most efficient option to achieve true universal service in the
long-run--that is, to ensure that all Americans have access to
reasonably comparable service at reasonably comparable rates. Copper
networks installed in rural areas decades ago during the transition
from party-line to single-line telephone service are in many cases long
past their useful life, and as those networks deteriorate, consumers
run the risk of losing access even to voice service, never mind
obtaining access to reasonably comparable broadband. And while fixed
wireless may be an option in certain cases to help deploy broadband, it
is worth noting that many fixed wireless solutions do not enable voice
service; in fact, many fixed wireless providers specifically disavow
the offering of voice services. Similarly, satellite services present
significant limitations in the carriage of real-time voice traffic, and
NTCA understands that capacity limitations are even precluding the
placement of new orders now for satellite broadband in wide swaths of
rural America. Thus, while each of these technologies could represent
niche parts of a comprehensive national solution, the fact remains that
the only reliable means of offering both voice services and ensuring
``reasonably comparable'' broadband in rural areas is through the
deployment and ongoing operation of robust, fixed networks.
Just as the nation committed to wiring all of America to ensure
rural electrification and rural telephony decades ago, it should
recommit to re-wiring America now--over time if needed to help manage
within reasonable ``budget targets''--to ensure that the statutory
mandate of universal service is served in an IP-enabled era.
Question 4. Would more targeted broadband mapping--at the address
level, specifically--help to accelerate deployment to unserved areas?
If not, please explain why less granular data models are sufficient to
target deployment to unserved households. Do you believe the current
level of data gathered by the National Broadband Map contributes to
overbuilding? If not, please explain.
Question 4a. While the collection of address level data is a
laudable goal, the implementation on a nationwide basis would be
extremely difficult for a number of reasons. First of all, not every
home in the country actually has a street address. Many homes located
in rural areas have post office boxes and not street addresses.
Additionally, wireless providers who claim to serve an entire area
would be unable to tie their coverage with an actual street address.
Finally, the sheer amount of data needed to accomplish this goal on a
nationwide basis would likely overwhelm the programs used to run the
mapping tools. The FCC recently took over the mapping initiative and
there are concerns about their ability to maintain the detail needed.
Answer. Networks are not built address-by-address or customer-by-
customer. Particularly in a broadband world, there are aggregation
points and middle mile connections that link entire rural communities
``back to the Internet.'' Thus, while better mapping to understand what
providers operate where and which services they actually offer could be
helpful in guiding Federal policy, such mapping cannot play an
exclusive or dispositive role in deciding where and to what degree to
provide universal service support in a given area. For example, while
multiple providers may provide broadband in a given area, only one may
be offering voice service and, moreover, a ``broadband coverage map''
will not yield any information that indicates whether the rates for
voice and broadband are ``reasonably comparable'' for purpose of
actually carrying out the statutory mandates of universal service.
NTCA has filed extensive comments at the FCC on the proper role of
mapping in guiding universal service policy, and raising concerns with
respect to the accuracy of the maps as they might be utilized to inform
USF support decisions. In particular, NTCA has noted that the states--
given their proximity to the consumer and better awareness generally of
competitive and marketplace conditions ``on the ground''--should play a
more prominent role in helping to identify what areas are truly
unserved or served by multiple providers. Examples of such comments can
be found in the attached Comments of NTCA et al., dated March 28, 2013
and Comments of NTCA et al., dated January 9, 2013.
Question 5. As many experts have noted, there is ``rural-rural
divide'' when it comes to the presence of broadband infrastructure in
rural America. According to the FCC, more than 83 percent of the
approximately 18 million Americans that lack access to residential
fixed broadband at or above the basic level of acceptable service
outlined in the National Broadband Plan live in areas served by price-
cap carriers. The FCC attempted to address this disparity by
establishing an incremental support component in the Phase I CAF Fund
for price cap carriers. The initial support was established at $300
million, but more than half of the allocated funds went unclaimed.
Different types of carriers have expressed opinions about whether or
not it was a good idea for the FCC to set aside this amount of money
even though the bulk of the $4.5 USF program was allocated to other
types of carriers.
Question 5a. Regardless of your views on the Phase I Fund, do you
think the FCC has done enough to provide coverage to the 14.9 million
people who still lack any sort of basic broadband service?
Question 5b. If so, when do you think we can expect to provide
broadband service to all Americans? If not, what else could the FCC do
to provide universal broadband service?
Answer. Interestingly, the ``rural-rural divide'' notion fails to
take into account that, even as small carriers have made
``commendable'' strides to deploy broadband in high-cost areas as noted
in prior answers, many Americans living in rural areas served by those
small carriers still lack access to even 4/1 Mbps broadband. Thus,
while these customers may have access to some very basic levels of
broadband because of the hard work of the small carriers that serve
them and public-private partnerships made possible through USF, the
fact remains that more remains to be done in all rural areas--both
those served by larger carriers and those served by smaller carriers--
to realize sustainable universal service in which all consumers have
access to reasonably comparable broadband at reasonably comparable
rates.
There is also increasing concern that a misplaced focus on a
perceived ``rural-rural divide'' will result in missing the much more
concerning gap arising between rural and urban areas generally. As the
National Telecommunications and Information Administration and the
Economic and Statistics Administration of the Department of Commerce
highlighted in their joint June 2013 report entitled ``Exploring the
Digital Nation: America's Emerging Online Experience,'' broadband
adoption in rural areas trails adoption in urban areas by a substantial
degree (72 percent in urban areas; 58 percent in rural areas). Without
sufficient USF support to help ensure that sustainable rural broadband
is available and to help ensure that the prices for broadband access in
high-cost areas are and remain reasonably comparable, it will become
only more difficult over time to overcome this growing and troubling
``rural-urban divide.''
As for whether the FCC has done enough to provide coverage to those
who lack access to any sort of basic broadband in rural areas, it is
simply too soon to tell whether the CAF Phase I program (and certainly
the CAF Phase II program) will ultimately succeed in actually enabling
better access to broadband in areas served by larger companies--and
whether that access is sustainable over time. It is clear, however,
that in areas served by smaller carriers such as those within NTCA's
membership, the effect of the reforms--as explained in prior answers--
has been to put much of the investment in more broadband-capable
networks on hold as carriers sort through the byzantine ``Quantile
Regression Analysis'' caps or await the prospect of further cuts to USF
support through the FCC's further notice of proposed rulemaking.
In the wake of the 2011 reforms, NTCA has presented to the FCC
several different ways in which it could create regulatory certainty
and build a broadband future in which ``universal broadband service''
comes closer to realization across all of rural America. Of particular
note, NTCA has made a number of filings and has had productive
conversations with FCC staff in recent months regarding the creation of
a Connect America Fund for areas served by smaller companies--a support
mechanism that would enable the deployment and upgrade/maintenance of
sustainable broadband-capable networks regardless of whether consumers
choose to buy regulated voice service on any given line--and also
regarding replacements for the ``Quantile Regression Analysis'' caps
that would remove the complex retroactive impacts of those caps while
still meeting the FCC's desire for additional fiscal responsibility
measures in the context of small carriers' USF distribution mechanisms.
Details regarding these proposals and ongoing discussions with the FCC
regarding consideration of these issues can be found in the following
attached documents: Comments of NTCA et al., dated June 17, 2013, Reply
Comments of NTCA et al., dated July 15, 2013, and Ex Parte Letter from
NTCA dated September 12, 2013.
Question 6. There has been a great deal of discussion about the
FCC's models for CAF. Given that technology is advancing at a rapid
rate, it seems like the FCC should be focused on establishing a cost
model that is updated frequently enough to provide an accurate sense of
the marketplace.
Question 6a. How important is the timeliness of the FCC's proposed
cost model in delivering service to unserved areas?
Question 6b. Do you agree with the revisions the FCC has made to
its cost model? Does the cost model accurately predict needs/services
under CAF? If not, or if you believe the FCC model should lock in rates
for a longer period of time, please explain how a longer view would
deliver broadband to unserved areas more quickly than an annualized
model.
Answer. The cost model currently under consideration for CAF by the
FCC does not apply to small, rate-of-return-regulated carriers pursuant
to the terms of FCC order 11-161. Instead, the CAF model currently
being developed for implementation is applicable by FCC rule and order
only to larger, price cap-regulated carriers. NTCA has, however,
submitted several rounds of comments to the FCC regarding the model,
noting many of the ways in which it would need to be reviewed and
modified to provide a potential alternative means by which smaller
carriers could voluntarily seek distribution of USF support. These
observations can be found in the June 17, 2013 Comments, the July 15,
2013 Reply Comments, and the September 12, 2013 Ex Parte letter noted
in the prior answer and attached hereto.
As noted in prior answers, there is not yet a Connect America Fund
for areas served by smaller carriers, although NTCA continues to engage
in productive conversations with the FCC regarding the development of
such a program tailored for the unique challenges faced by smaller
carriers that operate exclusively in rural, high-cost areas.
Beyond these general clarifications regarding the inapplicability
of the model to small carrier operations today and the need for
substantial modifications to the extent a model of some kind might be
used by smaller carriers on a voluntary basis at some future point to
obtain USF support, NTCA cannot speak to the questions of how the model
might spur--or fail to spur--delivery of broadband services to rural
areas served by price cap-regulated carriers. NTCA notes once again,
however, that it is essential (and required by statutory universal
service mandate) that the problem to solve is not viewed merely as a
one-time challenge of ``delivering'' broadband to unserved areas;
rather, the question to address must also examine the extent to which
USF/CAF resources can help promote sustainable broadband-capable
networks and affordable services throughout all rural areas.
Question 7. A report by the nonpartisan Congressional Research
Service analysis captures one of the major challenges of USF reform as
follows:
``Smaller, rural, rate-of-return carriers are particularly
dependent on USF subsidies, and have expressed concern that the
reforms that the USF Order will implement could place them
under financial hardship. Many RUS telecommunications and
broadband borrowers (loan recipients) receive high cost USF
subsidies. In many cases, the subsidy received from USF helps
provide the revenue necessary to keep the loan viable. The
Telecommunications Infrastructure Loan program is highly
dependent on high-cost USF revenues, with 99 percent (476 out
of 480 borrowers) receiving interstate high-cost USF support.
This is not surprising, given that the RUS Telecommunications
Loans are available only to the most rural and high-cost areas
(towns with populations less than 5,000). Regarding broadband
loans, 60 percent of BIP (stimulus) borrowers draw from state
or interstate USF support mechanisms, while 10 percent of farm
bill (Rural Broadband Access Loan and Loan Guarantee Program)
broadband borrowers receive interstate high-cost USF support.
Thus, to the extent that USF may be reformed, this could have
an impact on the viability of RUS telecommunications and
broadband loans, and ultimately the overall financial health of
the carrier.
Although the FCC included a waiver process in its USF Order for
those carriers that felt they would be subject to significant
economic stress, due to the reforms, many smaller carriers
assert that the waiver process is too burdensome and difficult
and that the requirements for qualifying for relief are too
restrictive.''
Additionally, according to the U.S. Department of Agriculture,
demand for RUS loan funds was only 37 percent of loan funds
appropriated by Congress in FY2012. This is indicative of the fact that
the restructuring and uncertainty around USF/CAF reform could diminish
the desirability of RUS broadband loans to borrowers going forward.
Question 7a. Given that the RUS and USF broadband programs share
the goal of deploying broadband to rural America, and many RUS
borrowers appear to be significant beneficiaries of USF as well, are
these programs effectively targeted towards providing broadband to
unserved areas of the nation?
Answer. Although FCC order 11-161 has been perceived as
``modernizing'' the fund to allow more companies to invest in
broadband-capable networks in rural areas, as noted in prior answers:
(1) smaller carriers, such as those in NTCA's membership, have already
leveraged USF support for years to make ``commendable'' progress in
deploy multi-use, broadband-capable networks (although more remains to
be done); and (2) FCC order 11-161 did not create a Connect America
Fund for smaller carriers. As noted in prior answers, small carriers
and their representatives are currently working with the FCC to address
these issues and to determine what additional steps might be taken to
implement a CAF that promotes sustainable upgrades to broadband
networks in areas served by smaller carriers as well, and we remain
hopeful that such discussions will yield productive results.
Rural Utilities Service (``RUS'') financing and USF programs play a
complementary role in supporting the deployment and sustainability of
broadband-capable networks in rural areas. Much like a commercial
lender, RUS provides reasonable access to capital--but unlike many
commercial lenders, RUS is willing to do so (and charged by statute to
do so) in some of the most challenging reaches of the United States.
The high-cost USF program, in turn, helps to ensure that consumers can
pay ``reasonably comparable'' rates for ``reasonably comparable''
services on the networks that RUS (and only a small handful of other
commercial lenders) help to finance in the first instance. In this
regard, it is once again important to recall that USF is much more--by
law--than an ``availability'' program; instead, the high-cost USF
program is in many respects an ``adoption'' program, helping to ensure
that rates for services on networks in rural areas are not
unaffordable.
Thus, the RUS financing programs and the high-cost USF program play
two very different, but complementary and very important, roles in
promoting and sustaining rural broadband.
Question 7b. Are these programs the most cost-effective way for
Congress to fund rural broadband development? If so, please explain
why. If not, please share any ideas you may have regarding a more cost-
effective approach to encouraging broadband deployment.
Answer. These programs are extremely cost-effective. In fact, the
RUS traditional telecommunications loan program is what is commonly
known as a ``super program.'' It is one of the few government programs
that actually pays down the deficit by returning funds to the U.S.
Treasury when loans are repaid. Meanwhile, as noted in prior answers,
the high-cost USF program overall had a slightly declining ``budget''
for several years even before the reforms in 2011, and the portion of
high-cost support received by smaller carriers was increasing by only 3
percent per year on average leading up to those reforms even as these
rural providers edged out broadband to more than 92 percent of their
consumers. Thus, at least prior to the 2011 reforms, both programs
represented rare and remarkable successes in policy--yielding funds
back to the American taxpayer while promoting broadband investment (in
the form of the RUS programs) and helping to justify such investments
and the ongoing provision of affordable rates for broadband to
consumers (in the form of the high-cost USF programs).
Question 7c. Given that these two programs (USF and RUS) share the
same goals, to what extent are they duplicative and to what extent are
they complementary?
Answer. As noted above, the two programs are not at all
duplicative; they are instead entirely complementary. The high-cost
portion of the USF is designed to be part of a revenue base to allow
companies to operate in areas where it would otherwise be uneconomical
to operate, and to keep consumer rates ``reasonably comparable'' in
such hard-to-serve. As stated in Section 254 of the Act, it was the
policy of Congress to attempt to equalize the cost and availability for
advanced telecommunications services for all parts of the country,
regardless of where someone lived.
On the other hand, the Rural Utilities Service, initially through
the Rural Electrification Administration, has helped to provide capital
financing for the build-out first of basic telephone networks across
the country. Moreover, many years ago (well before the 2011 FCC
reforms), the RUS adopted a forward-looking policy of ensuring that the
networks it financed--given that they would be in place and the costs
of them recovered over decades to come--should be broadband-capable,
thereby representing an ``early adoption'' of focusing deployment on
future-proof networks on which consumers could receive advanced
services.
Question 7d. Do you think that the FCC waiver process, as designed
and described above, is appropriate? If so, why? If not, what changes
would you recommend?
Answer. The process by which a carrier can obtain relief from
certain of the reforms in FCC order 11-161 remains problematic.
Initially, under the 2011 order, a consumer could see an unreasonable
increase in broadband rates, degradation in broadband speeds or service
quality, or even lose access to broadband service altogether as a
result of a FCC rule change, and yet no waiver would be available. In
its Fifth Order of Reconsideration, however, the FCC confirmed that
these too could be factors justifying the grant of a waiver, and the
agency also took certain other steps to relieve some (but not all) of
the burdens associated with obtaining a waiver.
The FCC has touted the waiver process as an important safety valve
where the reforms are having the effect of undermining, rather than
promoting, universal service. Unfortunately, even in the wake of the
Fifth Order on Reconsideration, waivers continue to take incredibly
long periods of time to address, cost carriers large amounts of money
to seek, and, to date, we have seen little, if any, improvement in the
process or the outcomes. If the waiver process is to be cited as the
last line of defense for universal service, it needs marked
improvement--and it should be clear in the first instance that any
universal service program that relies as much as the current system on
a protracted and opaque waiver process raises serious concerns in light
of the statutory requirement that USF support must be specific,
predictable, and sufficient.
______
Response to Written Questions Submitted by Hon. Mark Begich to
Shirley Bloomfield
Question 1. Thank you for your testimony. The recent FCC order
released on July 26, 2013 provided a reprieve from FCC and USF changes
and was a positive step for Alaska. However, how does the FCC's order
resolve the underlying problems associated with the USF/ICC
Transformation Order?
Answer. Although NTCA-The Rural Broadband Association (``NTCA'')
welcomed the delay of implementation in the next round of cuts for
providers, the most recent Federal Communications Commission (``FCC'')
order does not fix the many underlying issues with the Quantile
Regression Analysis (``QRA'') caps. We have continued to engage with
the FCC on the need to undertake a substantial review of and likely
replacement for the QRA system, and we are hopeful that the FCC might
even adopt a different mechanism to avoid once and for all the
byzantine, retroactive caps that still apply pursuant to the QRA
mechanism. A copy of our latest proposal to the FCC in this regard can
be found in the attached Ex Parte Letter from NTCA dated September 12,
2013.
Question 2. If you don't think the Quantile Regression Analysis
works in current form, what alternatives have you proposed to the QRA?
Answer. First and foremost, it is essential to fix the underlying
data issues that are known to be resident within the QRA mechanism. As
NTCA has shown in repeated filings since the Sixth Order on
Reconsideration, many steps are needed to determine whether and to what
degree the QRA can (or even should) be salvaged--and those steps cannot
begin until the acknowledged errors in the underlying model are
identified and corrected. Additionally, NTCA along with USTelecom and
WTA worked with former Chief Economist of the FCC, Simon Wilkie, to
examine the volatility of the QRA. A copy of the study is attached
hereto. Copies of other filings since earlier this year on these points
can be found in the attached documents: Ex Parte Letter from NTCA and
WTA dated March 6, 2013 Ex Parte Letter from NTCA dated April 18, 2013,
Ex Parte Letter from NTCA dated May 31, 2013, and Ex Parte Letter from
NTCA dated July 19, 1013.
In recent months, however, NTCA has worked with other stakeholders
to create an alternative proposal that would satisfy the FCC's desire
for ``fiscal responsibility'' in the form of a reasonable, well-defined
constraint on future investments without injecting byzantine levels of
complexity and uncertainty into the recovery of both past and future
investment. A summary of this proposal, entitled the ``Capital Budget
Mechanism,'' can be found in the Ex Parte Letter from NTCA dated
September 12, 2013 attached hereto. This proposal would define each
small carrier's ``budget'' for future USF-eligible investment based
upon a transparent identification of its need to replace depreciated
plant over a series of years, and the mechanism includes a ``trigger''
that could be used by the FCC to adjust a given carrier's future
investment budget without putting at risk recovery of costs associated
with investments made years ago in accordance with then-current rules
and reasonable expectations.
Question 3. If you think the current waiver process is broken, what
specific steps would you take, or urge Congress to take to fix it?
Answer. The process by which a carrier can obtain relief from
certain of the reforms in FCC order 11-161 remains problematic.
Initially, under the 2011 order, a consumer could see an unreasonable
increase in broadband rates, degradation in broadband speeds or service
quality, or even lose access to broadband service altogether as a
result of a FCC rule change, and yet no waiver would have been granted.
In its Fifth Order of Reconsideration, however, the FCC confirmed that
these too could be factors justifying the grant of a waiver, and the
agency also took certain other steps to relieve some (but not all) of
the burdens associated with obtaining a waiver.
The FCC has touted the waiver process as an important safety valve
where the reforms are having the effect of undermining, rather than
promoting, universal service. Unfortunately, even in the wake of the
Fifth Order on Reconsideration, waivers continue to take incredibly
long periods of time to address, cost carriers large amounts of money
to seek, and, to date, we have seen little, if any, improvement in the
process. If the waiver process is to be cited as the last line of
defense for universal service, it needs marked improvement--and it
should be clear in the first instance that any universal service
program that relies as much as this current system on a protracted and
opaque waiver process raises serious concerns in light of the statutory
requirement that USF support must be specific, predictable, and
sufficient.
Ultimately, if a well-functioning Connect America Fund can be set
up that provides predictable and sufficient support for investments in
broadband-capable networks by smaller carriers, if the QRA mechanism
can be addressed as suggested by NTCA and others in recent proposals,
and if the FCC can eliminate the regulatory uncertainty created by the
``overhang'' prospect of even more cuts in the further notice of
proposed rulemaking issued in 2011, this could help to reduce the need
for and reliance upon a waiver mechanism in the first instance.
Question 4. Please explain in more detail your proposal for a
Connect American Fund for RLECs--why it is needed and how it would
work?
Answer. Details of the proposal (including specific recommended
rules to implement the proposal) can be found in the following filings
made in recent months by NTCA and allied stakeholders with the FCC and
included in the addendum: Comments of NTCA et al., dated June 17, 2013,
Reply Comments of NTCA et al., dated July 15, 2013, and Ex Parte Letter
from NTCA dated September 12, 2013.
NTCA's proposal is intended to solve a technical gap in
``connecting the dots'' between FCC order 11-161 and the rules that
govern distribution of USF support to smaller carriers. In the order,
the FCC clearly grasped the need to evolve how it would support
broadband-capable networks. Specifically, the FCC ruled in the order
that the service to be supported through high-cost USF going forward
would no longer be the actual sale of ``Plain Old Telephone Service''
(or ``POTS''), but rather the offer of ``voice telephony service'' on
broadband-capable networks. Specifically, the FCC determined that to be
eligible for receipt of USF support, carriers should be required ``to
offer voice telephony as a standalone service throughout their
designated service areas.'' The Commission further stated that
``Section 254 grants . . . the authority to support not only voice
telephony service but also the facilities over which it is offered,''
and that ``the modified definition simply shifts to a technology
neutral approach, allowing companies to provision voice service over
any platform, including the PSTN and IP networks.
Unfortunately, the unmistakably clear, forward-looking vision in
the text of the FCC's order did not carry through as a simple
mechanical matter to the rules that actually govern the distribution of
USF support for smaller carriers such as those in NTCA's membership.
Instead, while these smaller carriers can and already do leverage USF
support to justify the deployment and enable the operation of
broadband-capable networks in high-cost areas, these smaller carriers
cannot receive USF support for the portion of the network used to serve
a given customer unless that customer actually chooses to buy POTS
service. Thus, where a customer chooses to buy wireless voice service
or wants to take an over-the-top VoIP service (such as Vonage) but then
desires to keep fixed broadband service from the smaller carrier, that
customer's broadband rates ironically spike several times over because,
pursuant to rules that were left unchanged in the 2011 reforms, USF
support is no longer available in connection with that portion of the
small carrier's network.
This result flies in the face of the vision of the order, as well
as the intent to promote and sustain an IP evolution and ``modernize''
the USF program for a broadband-capable, IP-enabled world. To remedy
this disconnect between the FCC's vision as stated in the order and the
rules that govern distribution, NTCA and other stakeholders have
proposed support for ``data-only broadband'' or ``standalone
broadband'' in the form of a Connect America Fund for smaller carriers.
Under this proposal, while a smaller carrier would be required to offer
voice telephony service to each and every consumer, as with the CAF for
price cap carriers, the availability of USF support to deliver
affordable services would not be dependent upon whether any given
customer chooses to buy POTS service when offered. The exact amount of
USF/CAF support available to each carrier under this proposal would be
calculated based upon an assessment of the costs required to provide
service on the supported network as compared to the ``reasonably
comparable'' rate that the carrier should be expected to obtain from
the consumer in connection with the provision of such service.
______
Response to Written Questions Submitted by Hon. Mark Warner to
Jerry James
Question 1. With respect to the coming IP transition and advancing
technology, which specific requirements from the Telecommunications Act
of 1996 are the most important to maintain to ensure fair competition
in the marketplace?
Question 1a. For example, the 1996 Act has clear interconnection
requirements. Do you believe that these provisions are technology-
neutral and should apply in an IP-based network? If not, please explain
why not.
Answer. The provisions of the Communications Act establish the
preconditions for competition in the telecommunications market by
requiring that competitors have access to last-mile end-user
connections and interconnection on reasonable rates, terms, and
conditions. These provisions are crucial to the IP transition because
the most effective way of promoting efficient investment in new IP
technologies is to promote competition. Moreover, these provisions are
technologically neutral. They have applied to every technology used in
the network since its inception, and it is crucial that the FCC apply
them to IP networks.
First, it is impossible to overstate the importance of ensuring
access to last-mile, end-user connections on reasonable rates, terms
and conditions. The incumbent telephone companies own the only physical
connection to many business customers in the U.S. It is not
economically possible for competitors to replicate these facilities
because the steep costs associated with building new facilities (e.g.,
obtaining access to rights of way, digging up streets, etc.) often far
exceed the revenues that can be earned from serving business customer
locations. This is so regardless of whether the services provided to
the customers utilize legacy technologies or new IP technologies. As a
result, incumbent telephone companies have market power over last mile
connections to business customers, and they have little or no incentive
to make these facilities available to their competitors.
This is why the terms of the Communications Act, both those adopted
in the original 1934 Act (sections 201(b) and 202(a), which govern
special access) and the amendments added in 1996 (sections 251(c)(3)
and 252(d)(1), which govern unbundled network elements), mandate that
incumbent LECs provide these facilities to competitors on reasonable
rates, terms, and conditions. Competitors rely on last mile facilities
made available pursuant to these statutory provisions to provide
innovative, game-changing services to business customers. This would
not be possible if last-mile facilities were unavailable to competitors
at wholesale, and, again, this is true regardless of the technology
used to provide services over the end user connections. Thus, if
incumbent telephone companies are no longer required to provide
competitors access to last mile facilities after the transition to IP
networks, U.S. businesses would lose the benefit of competition,
yielding less innovation, higher prices, and degraded service quality.
Second, interconnection is also critically important. A provider of
voice services must be able to interconnect its network with other
providers' networks in order to ensure that its customers can call the
other providers' customers. But so-called ``network effects'' prevent
incumbent telephone companies from having an incentive to cooperate
with competitors in establishing interconnection arrangements. As the
FCC has explained, ``[n]etwork effects arise when the value of a
product increases with the number of customers who purchase it.'' \1\
For instance, the value of a subscriber's telephone service increases
as the number of other people the subscriber can reach using that
service increases.\2\ And, ``[i]f the attractiveness of a [telephone or
other communications] network increases as it enlarges, consumers will
tend to choose the larger network, which in turn will make it even
larger and more attractive.'' \3\ For this reason, large incumbent
telephone companies--which have far larger voice subscriber bases than
virtually any of their competitors--do not need to interconnect with
competitors nearly as much as competitors need to interconnect with
them. As the FCC explained it in 1997, ``incumbent LECs have no
economic incentive . . . to provide potential competitors with
opportunities to interconnect with . . . the incumbent LEC's network.''
\4\
---------------------------------------------------------------------------
\1\ USF/ICC Transformation FNPRM 1336.
\2\ See id.
\3\ See Network Effects in Telecommunications Mergers MCI WorldCom
Merger: Protecting the Future of the Internet, Address by Constance K.
Robinson, Director of Operations and Merger Enforcement, DOJ Antitrust
Division, before the Practicing Law Institute, at 2 (Aug. 23, 1999),
available at http://www.justice.gov/atr/public/speeches/3889.pdf (``DOJ
Network Effects in Telecommunications Mergers Address'').
\4\ Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996; Interconnection Between Local Exchange
Carriers and CMRS Providers, First Report and Order, 11 FCC Rcd. 15499,
55 (1996) (``Local Competition Order'') (subsequent history omitted).
---------------------------------------------------------------------------
This is as true today as it was in 1997. The size of a carrier's
customer base is still the most important determinant of its leverage
in interconnection negotiations and its willingness to interconnect
with other carriers. And incumbent LECs such as AT&T and Verizon still
have far more voice subscribers than non-incumbent LECs.\5\ The
resulting market power over interconnection persists, regardless of
whether a competitor seeks interconnection using legacy technology or
IP.
---------------------------------------------------------------------------
\5\ This point can be illustrated by measuring the value of a large
incumbent LEC's network relative to that of a competitor. Under one
such measure (known as ``Metcalfe's law''), the relative value of a
network is proportional to the square of the number of subscribers
served by the network. See Michael Kende, FCC Office of Plans and
Policy, The Digital Handshake: Connecting Internet Backbones, OPP
Working Paper No. 32, at 3 n.5 (Sept. 2000), available at http://
www.fcc.gov/Bureaus/OPP/working_papers/oppwp32.pdf. The difference in
the relative values of incumbent LECs' voice networks and competitive
LECs' voice networks is enormous. For example, Cbeyond, a CompTel
member, provides voice and data services to approximately 59,000
business customers. See Cbeyond, Inc., SEC Form 10-Q, Item 2 (filed May
2, 2013); Integra Telecom, About Us, http://www.integratelecom.com/
about/Pages/default.aspx (last visited Aug. 1, 2013). AT&T provides
approximately 122.9 million total voice connections. See AT&T Inc., SEC
Form 8-K, Items 8.01, 9.01 (filed July 24, 2013). This total includes
92.7 million wireless connections (excluding data-centric devices such
as tablets), 26.8 million switched access lines, and 3.4 million U-
Verse VoIP connections. See id. Even under the conservative assumptions
that all of Cbeyond's business customers purchase voice services and
that those customers each purchase numerous voice connections (e.g.,
100 voice connections), Metcalfe's law would yield the conclusion that
AT&T's voice network is hundreds of times more valuable than Cbeyond's
and Integra's voice networks.
---------------------------------------------------------------------------
This is why the terms of the Communications Act mandate that
service providers interconnect with each other. Of particular
importance is Section 251(c)(2), which requires that incumbent
telephone companies interconnect at any technically feasible point with
a requesting competitor. This provision evens an otherwise highly
imbalanced playing field and makes it possible for competitors to
interconnect and exchange traffic with incumbent voice service
providers.
Direct interconnection rights are crucial for managed IP voice
services demanded by business customers because those services do not
traverse the public Internet and cannot be exchanged over established
Internet backbone networks. Rather, providers of business IP voice
services must interconnect using separate, managed connections, a
situation in which incumbents can exploit, and have exploited, to their
advantage by refusing to interconnect on an IP basis. My understanding
is that AT&T incumbent telephone company operations have not
interconnected in IP with a single competitor for the exchange of voice
traffic. Verizon has only agreed to establish such interconnection with
one competitor, and that was with Comcast, one of the very few
competitors with a large customer base. In contrast competitors have
established IP interconnection with each other. For example, Sprint
``currently has IP interconnection agreements with 12 major [non-
incumbent LEC] carriers.'' \6\ Similarly, tw telecom has entered into
five VoIP interconnection agreements with non-incumbent LECs, including
with one cable company. But competitors must eventually establish these
arrangements with incumbent telephone companies, and that outcome can
only be assured if the requirements of Section 251(c)(2) apply to
interconnection in IP.
---------------------------------------------------------------------------
\6\ See Comments of Sprint, GN Docket No. 13-5, at 6 (filed July 8,
2013).
---------------------------------------------------------------------------
As the FCC has stated:
The technology change does not alter the fact that carriers
must still interconnect. ``Basic interconnection regulations,
which ensure that a consumer is able to make and receive calls
to virtually anyone else with a telephone, regardless of
service provider, network configuration or location, have been
a competition to thrive, the principle of interconnection--in
which customers of one service provider can communicate with
customers of another--needs to be maintained.\7\
---------------------------------------------------------------------------
\7\ The National Broadband Plan at 49.
The change in technology also does not alter the incumbent LEC's
subscriber base or its control of the physical facilities used to
provide the service. Moreover, in the case of managed VoIP services,
which constitute the vast majority of interconnected VoIP
subscriptions,\8\ the end-user service is fundamentally the same as
one's traditional phone service. Unlike over-the-top service, managed
VoIP services do not traverse the public Internet and provides
substantially higher quality of service, security and reliability. A
consumer is unlikely to view a managed VoIP service any differently
from their traditional phone service. Managed VoIP service meets the
statutory definition of a telecommunications service.\9\
---------------------------------------------------------------------------
\8\ Only 10 percent of interconnected VoIP subscribers use an
Internet based service. The FCC reported 37 million interconnected VoIP
subscriptions at the end of 2011, see Local Telephone Competition,
Status as of December 31, 2011, Industry Analysis and Technology
Division, Wireline Competition Bureau, January 2013, p. 1 (``FCC 2013
Local Competition Report''), and USTELECOM estimates there to be a mere
3.5 million of OTT VoIP lines, see USTELECOM, ``Evidence of Voice
Competition and ILEC Non-Dominance Mounts,'' April 2, 2013, at 8 (``UST
Brief''). Available at: http://www.ustelecom.org/news/research-briefs/
ustelecom-research-brief-april-4-2013. COMPTEL does not endorse the
USTELECOM analysis (which generally understates ILEC dominance).
\9\ 47 U.S.C. 153(46) [``The term ``telecommunications service''
means the offering of telecommunications for a fee directly to the
public, or to such classes of user as to be effectively available
directly to the public, regardless of the facilities used.''(Emphasis
added).
---------------------------------------------------------------------------
Finally, there can be no dispute that the terms of the
Communications Act that mandate access to last-mile end-user
connections and interconnection are technology neutral. This is evident
from the terms of the provisions, which make no distinction between
legacy and new technologies. Moreover, as, the Federal Communications
Commission (``FCC'') explained when addressing the 1996 amendments,
``[n]othing in the statute or legislative history indicates that it was
intended to apply only to existing technology. . .Congress was well
aware of. . .packet-switched services in 1996, and the statutory terms
do not include any exemption for those services.'' \10\
---------------------------------------------------------------------------
\10\ Memorandum Opinion and Order, and Notice of Proposed
Rulemaking, Deployment of Wireline Services Offering Advanced
Telecommunications Capability, CC Docket Nos. 98-147, 98-11, 98-26, 98-
32, 98-78, 98-91, CCB/CPD No. 98-RM 9244, FCC 99-188, 48-49 (1998).
Question 1b. How important is iti to maintain the legacy/copper
communications netowrks as we transition to IP? If so, for how long? If
not, please explain why not?
Answer. As an initial matter, IP alone cannot get traffic from
Point A to Point B. The reason is that IP is nothing more than a
software protocol--a set of rules; it is not a physical network. IP,
therefore, needs a physical network framework over which to transport
traffic according to its rules. Just as with TDM, IP can be used with
the legacy copper, fiber or wireless networks.
As explained, the ability for competitors to have access to last
mile facilities to the consumer is critical for consumers to have a
choice in service providers. As also explained, competitors cannot
possibly replicate the ILEC network in many locations. So where
building facilities is not a viable option, competitors have no choice
but to rely on access to ILEC last-mile facilities.
The most efficient last-mile connections for providing IP service
utilize packet-based technology, such as Ethernet. Incumbent LECs have
market power over last-mile end-user connections that utilize this
technology just as they have market power over last-mile end-user
connections that utilize legacy technologies. In order to ensure that
business customers receive the benefits of competition during and after
the transition to IP, it is critical that the FCC adopt rules requiring
that incumbent telephone companies offer packet-based last-mile end-
user connections, including those that utilize Ethernet, to competitors
on reasonable rates, terms, and conditions. These rules should apply
regardless of whether the underlying physical connection to the end
user consists of copper, fiber or some other material. Failure to
ensure this outcome will ultimately hobble competition and harm the
U.S. economy.
But until the FCC adopts such rules, it must make sure that legacy
copper loops are available to competitors. Existing FCC last-mile
access rules severely curb the access competitors have to incumbent LEC
last mile facilities. Among the few kinds of last-mile facilities that
are subject to regulation are legacy copper loops. Competitors use the
last mile access they obtain through the copper loop to serve business
customers. They have done so by providing innovative and valued
services to small and medium size businesses and to supplement service
to multi-location enterprise customers in locations where it has been
uneconomical for them to build their own facilities. Competitors have
invested millions of dollars to be able to offer these advanced
services which are at risk when such last mile facilities are
unavailable. In other words, the availability of the copper loop
provides business consumers a choice in providers they otherwise would
lack and encourages substantial infrastructure investment by
competitors in the electronics that translate a bare copper wire to a
broadband facility. Thus, until the FCC updates its rules governing
access to last-mile end user connections to encompass facilities to
utilize packet technology such as Ethernet, it must ensure that
competitors continue to have access to copper loops.
Question 2. Reform of the Universal Service Fund (USF)/creation of
the Connect America Fund (CAF) is critically important because millions
of Americans still lack access to high-speed broadband service in many
areas of the country. According to the National Broadband Plan,
broadband is available in 98 percent of the nation, but the national
adoption rate, according to the National Telecommunications and
Information Administration (NTIA) and Census data, is 72 percent. I
believe it is important for all Americans to have access to high-
capacity broadband service, and therefore, I am focused on policies
that help us to reach 100 percent coverage of U.S. households. However,
we have a limited amount of money that we can allocate as a nation to
rural broadband deployment, and I believe we should prioritize funding
to support buildout in unserved areas or areas below 4 mbps down/1
mbps. Typically, these areas are still unserved because of the high
cost of deployment and the low population density. Understandably, this
makes it difficult for private companies to deploy broadband in these
areas, and it is also the reason why policymakers decided to create
programs like USF/CAF--to serve hard-to-reach places in the country.
Question 2a. Do you believe CAF is adequately focused on broadband
deployment in unserved areas? If so, how long do you think it will take
to reach full deployment? If not, please explain what it would take to
buildout unserved areas of our country given that we only have
approximately $4.5 billion/year through USF.
Question 2b. Is the pace of reform moving too slowly?
Answer. COMPTEL agrees that ensuring all consumers in the U.S. have
access to broadband services is an important goal for our Nation and
that increasing the broadband adoption rate in the U.S. is necessary to
ensure that the entire nation benefits from the broadband economy. As
you know, the FCC's effort to reform the high-cost program in USF was
largely focused on reallocating money to areas not served by broadband,
which are largely in the price cap carrier territories.
Generally, COMPTEL members are not eligible to receive funding in
the reform of the high-cost program; however, we do have one member
that is an incumbent price cap telephone company that qualifies, and it
has accepted funding in both rounds of CAF Phase I and is deploying
broadband services to unserved areas. During CAF Phase II, should the
incumbents not accept a statewide commitment to serve at the funding
amount to be determined by the FCC using a cost model (that is under
development), then other qualified providers may have the opportunity
to apply for the support and meet the service obligations (the process
by which is still to be determined by the FCC). COMPTEL believes that
every provider that is willing to serve those areas should be eligible
to apply for and receive funding if they can meet the service
obligations.
With respect to your last question about the pace of reform, yes
implementation of the reforms is taking a significant amount of time.
Unfortunately, any time a Federal funding program undergoes a major
overhaul such as this, delays are to be expected.
Question 3. Based on my experience in Virginia, it is not possible
to deploy fiber absolutely everywhere. Many areas of my state have
granite rockbeds, which make it prohibitively expensive to deploy
fiber. Therefore, I am supportive of cost effective deployment of
broadband technology to reach universal coverage. Although I recognize
that the focus of this hearing was on wireline issues, it seems to me
that we should consider the best technologies based on our national
goal of providing advanced communications services to all Americans.
Question 3a. Should the Federal Communications Commission (FCC)
focus more resources on best-available technology for unserved areas or
areas below 4/1? If so, please explain what else the FCC could do to
improve broadband coverage to unserved areas. If not, please explain
how we can reach full broadband deployment by focusing more on fixed
services, at a reasonable cost to taxpayers and consumers.
Question 3b. Please describe what role you see for other
technologies in terms of serving hard-to-reach areas in the near term.
Could we be more technology-neutral in our Federal broadband funding
programs?
Answer. The FCC's reform establishes two different types of
funding--one for fixed service (with its CAF) and one for mobile
service (with its Mobility Fund), acknowledging the importance of both
fixed and mobile service to consumers in the U.S. COMPTEL has
consistently advocated for policies that are competitively and
technologically neutral. The FCC maintains that its approach to USF
reform is technologically neutral. Many of COMPTEL's members use an
``all of the above'' strategy, offering a combination of fiber, copper,
mobile and fixed wireless, to achieve the broadest possible reach to
consumers and businesses in unserved and underserved areas. There is no
``one size fits all'' approach to serving those communities that are
the hardest to reach and the FCC should continue to look at all
reasonable avenues to address Federal broadband funding programs and
other incentives to expand and improve broadband coverage.
Question 4. Would more targeted broadband mapping--at the address
level, specifically--help to accelerate deployment to unserved areas?
If not, please explain why less granular data models are sufficient to
target deployment to unserved households. Do you believe the current
level of data gathered by the National Broadband Map contributes to
overbuilding? If not, please explain.
Answer. Revisions to the FCC's broadband data collection form (the
Form 477) are expected to go into effect next year and as a result, the
FCC will be collecting the deployment information that is used for the
National Broadband Map as well as broadband subscriber information. It
is our understanding that the FCC is using the Map to evaluate the CAF-
funded builds and a challenge process has been adopted to avoid funding
overbuilds in the second round of CAF Phase I. We believe that the
FCC's collection of data (as reformed) is sufficient at this time,
especially given the challenge process established so that competitors
may dispute a specific build plan using CAF Phase I funds.
Question 5. As many experts have noted, there is ``rural-rural
divide'' when it comes to the presence of broadband infrastructure in
rural America. According to the FCC, more than 83 percent of the
approximately 18 million Americans that lack access to residential
fixed broadband at or above the basic level of acceptable service
outlined in the National Broadband Plan live in areas served by price-
cap carriers. The FCC attempted to address this disparity by
establishing an incremental support component in the Phase I CAF Fund
for price cap carriers. The initial support was established at $300
million, but more than half of the allocated funds went unclaimed.
Different types of carriers have expressed opinions about whether or
not it was a good idea for the FCC to set aside this amount of money
even though the bulk of the $4.5 USF program was allocated to other
types of carriers.
Question 5a. Regardless of your views on the Phase I Fund, do you
think the FCC has done enough to provide coverage to the 14.9 million
people who still lack any sort of basic broadband service?
Question 5b. If so, when do you think we can expect to provide
broadband service to all Americans? If not, what else could the FCC do
to provide universal broadband service?
Answer. The challenge of serving all Americans with broadband is
great given the diverse geographic areas of the Nation. Moreover,
reforming USF so that it could more effectively target funds to
unserved areas was a significant accomplishment for the FCC. The FCC
balanced the burden on consumers who contribute to USF with its goal of
reaching unserved Americans when it established the $4.5 billion budget
for the high-cost programs. At the same time, the FCC unfortunately has
yet to address contribution reform or to broaden the contribution base
to include users of broadband services.
The National Broadband Plan that the FCC staff formulated under
Chairman Genachowski's leadership recommended that Congress provide
additional funding to build broadband infrastructure in unserved areas.
Given the national importance of broadband infrastructure, this
recommendation could be taken up by Congress to the extent that it is
dissatisfied with the pace of broadband deployment in the unserved
portions of rural America. Should you do so, COMPTEL would encourage an
application process for those funds that permits all technologies and
service providers that can meet the service requirements an opportunity
to compete for the support.
Question 6. There has been a great deal of discussion about the
FCC's models for CAF. Given that technology is advancing at a rapid
rate, it seems like the FCC should be focused on establishing a cost
model that is updated frequently enough to provide an accurate sense of
the marketplace.
Question 6a. How important is the timeliness of the FCC's proposed
cost model in delivering service to unserved areas?
Question 6b. Do you agree with the revisions the FCC has made to
its cost model? Does the cost model accurately predict needs/services
under CAF? If not, or if you believe the FCC model should lock in rates
for a longer period of time, please explain how a longer view would
deliver broadband to unserved areas more quickly than an annualized
model.
Answer. COMPTEL has not been participating in this process at the
Commission. Under the current structure of the FCC's USF Reforms, the
principal role of the cost model will be to allocate ``relative''
support among areas served by incumbent local exchange carriers.
Because the vast majority of COMPTEL members are not incumbent local
exchange carriers--and, therefore, are not eligible for support
determined by the cost model--we have not been engaged in a process
that largely impacts only incumbents.
Question 7. A report by the nonpartisan Congressional Research
Service analysis captures one of the major challenges of USF reform as
follows:
``Smaller, rural, rate-of-return carriers are particularly
dependent on USF subsidies, and have expressed concern that the
reforms that the USF Order will implement could place them
under financial hardship. Many RUS telecommunications and
broadband borrowers (loan recipients) receive high cost USF
subsidies. In many cases, the subsidy received from USF helps
provide the revenue necessary to keep the loan viable. The
Telecommunications Infrastructure Loan program is highly
dependent on high-cost USF revenues, with 99 percent (476 out
of 480 borrowers) receiving interstate high-cost USF support.
This is not surprising, given that the RUS Telecommunications
Loans are available only to the most rural and high-cost areas
(towns with populations less than 5,000). Regarding broadband
loans, 60 percent of BIP (stimulus) borrowers draw from state
or interstate USF support mechanisms, while 10 percent of farm
bill (Rural Broadband Access Loan and Loan Guarantee Program)
broadband borrowers receive interstate high-cost USF support.
Thus, to the extent that USF may be reformed, this could have
an impact on the viability of RUS telecommunications and
broadband loans, and ultimately the overall financial health of
the carrier.
Although the FCC included a waiver process in its USF Order for
those carriers that felt they would be subject to significant
economic stress, due to the reforms, many smaller carriers
assert that the waiver process is too burdensome and difficult
and that the requirements for qualifying for relief are too
restrictive.''
Additionally, according to the U.S. Department of Agriculture,
demand for RUS loan funds was only 37 percent of loan funds
appropriated by Congress in FY2012. This is indicative of the fact that
the restructuring and uncertainty around USF/CAF reform could diminish
the desirability of RUS broadband loans to borrowers going forward.
Question 7a. Given that the RUS and USF broadband programs share
the goal of deploying broadband to rural America, and many RUS
borrowers appear to be significant beneficiaries of USF as well, are
these programs effectively targeted towards providing broadband to
unserved areas of the nation?
Question 7b. Are these programs the most cost-effective way for
Congress to fund rural broadband development? If so, please explain
why. If not, please share any ideas you may have regarding a more cost-
effective approach to encouraging broadband deployment.
Question 7c. Given that these two programs (USF and RUS) share the
same goals, to what extent are they duplicative and to what extent are
they complementary?
Question 7d. Do you think that the FCC waiver process, as designed
and described above, is appropriate? If so, why? If not, what changes
would you recommend?
Answer. The Commission also reformed aspects of the support rate-
of-return carriers receive for serving their areas, and it continues to
look at ways to achieve additional reforms. We have not taken a
position on this aspect of USF reform, but we do believe that it is
important for the Commission to ensure that the high-cost funding is
competitively-neutral, is as efficient and effective as possible, and
only is used in areas where, but for Federal assistance, consumers
would not have access to services in rural areas that are comparable to
services available in urban areas.
______
Responses to Written Questions Submitted by Hon. Mark Warner to
Larry Downes
Question 1. With respect to the coming IP transition and advancing
technology, which specific requirements from the Telecommunications Act
of 1996 are the most important to maintain to ensure fair competition
in the marketplace?
Question 1a. For example, the 1996 Act has clear interconnection
requirements. Do you believe that these provisions are technology-
neutral and should apply in an IP-based network? If not, please explain
why not.
Answer. I do not believe that interconnection requirements or any
other requirements of Title II of the Communications Act are
``technology neutral,'' and I would advise Congress not to attempt to
transport or translate any specific requirements of Title II of the
Communications Act to IP networks.
Title II was inherited into the 1996 Act to deal with lingering
competitive issues of the former wireline monopoly. One could argue
that its continued application has contributed significantly to the
obsolescence of the PSTN network, but in any case it has no place--
either as a matter of sound engineering or sound policy--in an all-IP
world.
IP networks have developed as well as they have precisely because
they have not been subject to the kind of legacy regulation that has
applied to the former PSTN telephone monopoly. That has provided
significant incentives for providers to make massive capital
investments, and for engineers to innovate constantly in the
development of better and cheaper hardware, software, and standards
that have always been at the core of the Internet.
From a design and engineering standpoint, the concept of mandated
interconnection as the FCC has implemented it under Sections 251 and
252 of the Communications Act is a non sequitur in the context of IP
networks. The Internet has always operated on the basis of peering
arrangements, over 99.5 percent of which, according to the OECD, are so
simple that they aren't even memorialized in written documents.
It is hard to imagine how, as a matter of sound engineering, it
would even be possible to sub-divide IP traffic in a way that would
make it possible to apply Section 251 and Section 252 on voice-related
IP traffic moving solely between networks of ILECs and CLECs. Indeed,
some parties in the FCC's on-going IP Transition trials proceeding are
trying to use that engineering impossibility as an opportunity to apply
``interconnection'' mandates to all IP traffic, effectively bringing
all Internet traffic under Title II--in clear violation of the
Communications Act and Congress's sensible decision to leave
information services including data, text, and video outside of the
obsolete legacy rules.
As I explained in my written testimony:
Some critics of proposed IP transition trials have argued for
the continued application of existing regulations (particularly
interconnection mandates under Sections 251 and 252 of the
Communications Act), arguing that these provisions should apply
in a ``technology neutral'' fashion.\1\
---------------------------------------------------------------------------
\1\ See, e.g., Comments of Competitive Carriers Association, In re
AT&T Petition, GN Docket No. 12-353 (Filed Jan. 28, 2013), available at
http://apps.fcc.gov/ecfs/document/view?id
=7022113646.
According to these critics, ``the policy justifications for
requiring ILECs to provide interconnection and to submit to
arbitration--namely, the ubiquity of ILECs' telecommunications
networks and market power that these pervasive networks
confer--arise regardless of the technology used by those
networks to transmit and exchange telecommunications traffic.''
\2\
---------------------------------------------------------------------------
\2\ Id. at 3.
Not only are these complaints irrelevant to the proposed trials
(which are small steps aimed at determining precisely whether
constraints such as Sections 251 and 252 are appropriate), but
their alleged policy justification is not, in fact,
``technology neutral.'' Instead, it is a call to apply
barnacled rules, crafted over decades specifically for the
technology and business realities of the PSTN, to a new
---------------------------------------------------------------------------
ecosystem that shares few, if any, of the same characteristics.
Technology neutrality does not mean blindly enforcing design
principles suited for tree houses as buildings codes for steel
skyscrapers. Modern structures are clearly better. They require
entirely different rules, and different kinds of enforcement.
Applying PSTN rules to IP networks is bad business and bad
public policy. There are no regulated monopolies in the IP
ecosystem, and no need for the kind of regulations aimed at
controlling them.
An all-IP-infrastructure is clearly better for everyone. The
sooner we can complete the transition, the sooner we will reap
the full dividends of continuing private and public investments
in this new infrastructure. Getting the transition right will
not only save the legacy PSTN operators from irrelevance. It
will likely bolster the U.S. economy, accelerate the
technological empowerment of Americans as both citizens and
consumers, and sustain global competitiveness for U.S.
technology companies.
As the National Broadband Plan put it,
[B]roadband is a foundation for economic growth, job
creation, global competitiveness and a better way of
life. It is enabling entire new industries and
unlocking vast new possibilities for existing ones. It
is changing how we educate children, deliver health
care, manage energy, ensure public safety, engage
government, and access, organize, and disseminate
knowledge.\3\
---------------------------------------------------------------------------
\3\ National Broadband Plan, supra note 14, at xi. See also
chapters 10-16. And see Robert E. Litan and Hal Singer, The Need for
Speed: A New Framework for Telecommunications Policy in the 21st
Century (Brookings Institution Press 2013).
In The Politics of Abundance, former FCC Chairman Reed Hundt
and his one-time chief of staff Blair Levin make a persuasive
case that the shift to ``connected computing''--broadband
Internet, cloud-based services, and widespread mobile devices--
is essential to jumpstart the U.S. economy. Hundt and Levin
urge all levels of government to take immediate steps to
support what they call the ``knowledge platform''--ultra high-
speed broadband with high reliability and low latency, able to
support high-bandwidth, video-intensive applications and cloud-
---------------------------------------------------------------------------
based services.
As Hundt and Levin write, ``[t]o increase growth, job creation,
productivity gains, and exports at a faster rate, government
should double down on what is already doubling in the Internet
sector.'' \4\ They point, for example, to the fact that
Internet transit prices have improved as much as 50 percent
each year. (See Figure 1)
---------------------------------------------------------------------------
\4\ Reed Hundt & Blair Levin, The Politics of Abundance: How
Technology Can Fix the Budget, Revive the American Dream, and Establish
Obama's Legacy 9 (2012), 16-17.
---------------------------------------------------------------------------
Figure 1--Internet Transit Price per 1 Mbps, 1998-2015
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: Hundt & Levin, supra note 22, Figure 2.1, p. 105
The kind of high-speed, widely accessible and affordable
broadband Hundt and Levin describe also provides the tools that
innovators need to launch more Big Bang Disruptions. All-IP
networks will vastly expand the possibilities of the next
generation of cloud services like Google, Facebook, Twitter and
Salesforce. These services and others that will follow will be
superior in ways both easily imaginable (instant, more reliable
interaction with richer media like video, streaming
presentations, and more robust tools) but also in ways that we
cannot yet imagine.
Preserving Peer-Based Interconnection
The IP Transition will accelerate the ongoing transformation of
our digital experiences in ways that could be as revolutionary
as the introduction of the Internet itself. It is imperative
that government, private sector companies, and consumers work
together to get it done as quickly as possible.
Government, in particular, should work to undo much of the
regulatory mess that unnecessarily constrains legacy PSTN
providers as they transition to IP. For example, Congress and
the FCC should reject self-serving calls to impose outdated
regulations mandating network interconnection, devised for an
era of monopoly voice carriage, on the well-functioning market
for private Internet peering agreements, which already ably
provides for the efficient transport of voice as well as video
and data traffic.
Private peering arrangements have long provided an efficient
mechanism for interconnection on packet-switched networks,
regardless of whether the packets contain data, video, and
voice applications. The shutdown of PSTN networks and the
migration of additional voice traffic to the Internet do not
change the dynamics of that system. As Michael Kende, former
Director of Internet Policy Analysis at the FCC has recently
written:
[T]he competitive concerns that historically drove
interconnection regulations for PSTN-based voice
service are no longer valid due to the rapid take-up of
many different types of alternative communications
services to traditional voice, such as cable telephony,
software-based voice over IP (VoIP), and other IP-based
forms of communications. Therefore, as voice migrates
to the Internet there is no need for any regulation of
IP voice traffic which mirrors the regulation of the
PSTN on competition grounds, because the current IP
interconnection arrangements show how traffic will flow
end-to-end without a regulatory mandate.\5\
---------------------------------------------------------------------------
\5\ Michael Kende, Voice Traffic Exchange in an IP World, Analyses
Mason, April 12, 2013, at 2.
Today, marketplace and reputational incentives drive
interconnection and consumer protections. These incentives are
buttressed by various multistakeholder processes that continue
to evolve to supplement direct company-to-company dispute
resolution.\6\ At the same time, the FCC retains authority
under Title I of the Communications Act to regulate for public
safety, and antitrust and consumer protection laws govern IP
services precisely because they are not regulated as common
carriers (which are excluded from the FTC's general
jurisdiction over the economy).\7\
---------------------------------------------------------------------------
\6\ Most notable among these is the Broadband Internet Technical
Advisory Group (BITAG), ``a technical advisory group to discuss and
opine on technical issues pertaining to the operation of the Internet,
as a means of bringing transparency and clarity to network management
processes as well as the interaction among networks, applications,
devices and content.'' BITAG History, http://www.bitag.org/
bitag_organization.php?action=history (last visited February 25, 2013).
\7\ See Federal Trade Commission, Broadband Connectivity
Competition Policy, 3 (2007), available at http://www.ftc.gov/reports/
broadband/v070000report.pdf (``[FTC] jurisdiction [over broadband
Internet access services] had once been regarded as limited to the
extent that the FTC's general enforcement authority under the FTC Act
did not extend to entities that were `common carriers' under the
Communications Act. The regulatory and judicial decisions at issue,
however, confirmed that the larger categories of broadband Internet
access services, as information services, are not exempt from FTC
enforcement of the FTC Act.'').
If significant issues do arise in the IP transition that escape
these multiple layers of regulatory and governance constraints,
Congress can of course enact legislation appropriately targeted
to address clear consumer harms. But narrowly tailored
legislation from Congress after the IP transition has evolved
of its own accord is the proper mechanism for addressing such
issues--not by bringing the dead weight of old regulatory
---------------------------------------------------------------------------
baggage to new markets.
Not surprisingly, several parties in the FCC's on-going IP
transition proceedings have urged the agency to transplant
legacy interconnection requirements on IP networks as part of
the retirement of the PSTN. PSTN interconnection requirements,
however, were formulated when the Bell System was a true,
regulated monopoly. They were a necessary evil to control
monopolistic risks, and they have imposed considerable waste,
fraud and unnecessary cost in exchange for that benefit.
Consider, for example, recent FCC reforms of intercarrier
compensation aimed at reducing such interconnection arbitrage
as traffic pumping, phantom traffic and other abuses.\8\
---------------------------------------------------------------------------
\8\ Report and Order and Further Notice of Proposed Rulemaking, In
re Developing a Unified Intercarrier Compensation Regime, CC Docket No.
01-92 (November 18, 2011), available at http://www.fcc.gov/document/
fcc-releases-connect-america-fund-order-reforms-usficc-broadband.
In the IP world, by contrast, network operators worldwide
negotiate all manner of peering agreements absent any
regulation. Indeed, peering within the IP network is so easily
achieved, as the OECD has pointed out, that ``the terms and
conditions of the Internet interconnection model are so
generally agreed upon that 99.5 percent of interconnection
agreements are concluded without a written contract.'' \9\
Simply put, there is no evidence that anything is broken in the
IP network ecosystem.
---------------------------------------------------------------------------
\9\ OECD, Committee for Information, Computer and Information
Policy, Internet Traffic Exchange: Market Developments and Policy
Changes, 3 (June, 2011), available at http://search.oecd.org/
officialdocuments/publicdisplaydocumentpdf/?cote=DSTI/ICCP/CISP(2011)2/
FINAL&docLanguage=En.
Those asking regulators to invent an IP interconnection
regulatory scheme for voice (or perhaps for all Internet
traffic) invoke public interest concerns, but the real
motivation is simple rent-seeking. Smaller carriers prefer
below-market rates for backhaul, and CLECs are eager to protect
their subsidized business model in new ecosystems that are
already highly competitive. But these desires have nothing to
do with consumer harms, let alone the public interest. In any
case, the FCC should avoid ``prophylactic'' regulations for
interconnection problems that, as even those asking for them
---------------------------------------------------------------------------
admit, are speculative.
That Internet peering works so well absent regulation is no
surprise. Major ISPs have strong business incentives to
interconnect. For example, ISP customers increasingly demand
access to streaming video content from services such as Netflix
and Amazon, and ISPs know that streaming video is the primary
reason that customers are willing to pay for high-speed
broadband connections at home.
Where disputes have arisen (often around the distinction
between settlement-free transit vendors and paid-peering
content delivery networks (CDN), for example \10\), they have
taken the form of contract disputes between large commercial
players over the specific terms of interconnection, not whether
it will be available.
---------------------------------------------------------------------------
\10\ See, e.g., Marguerite Reardon, Understanding the Level 3-
Comcast spat (FAQ), C-Net (November 30, 2010), available at http://
news.cnet.com/8301-30686_3-20024197-266.html.
Moreover, demand for streaming video has become so strong that
Netflix, having established its own CDN, can now sidestep such
disputes and pressure ISPs to accede to its peering demands by
threatening to withhold new content or services. It is now
content providers, in other words, and not ISPs, who threaten
to withhold traffic.\11\ The newfound market power of content
providers--as well as increasing intermodal competition from
mobile broadband--upends the weathered assumption that ISPs
hold all of the bargaining power in interconnection
negotiations.
---------------------------------------------------------------------------
\11\ See, e.g., Betsy Isaacson, Netflix Says 3D and 'Super-HD'
Movies Are Just Around The Corner--But Only For Some Customers,
Huffington Post (January 9, 2013), available at http://
www.huffingtonpost.com/2013/01/09/netflix-3d-movies_n_2441394.html;
Fred Campbell, Netflix Blocking Internet Access to HD Movies, The
Technology Liberation Front (January 17, 2013), available at http://
techliberation.com/2013/01/17/netflix-blocking-internet-access-to-hd-
movies/; Fred Campbell, What Does Netflix's Decision to Block Internet
Content Tell Us About Internet Policy?, The Technology Liberation Front
(January 23, 2013), available at http://techliberation.com/2013/01/23/
what-does-netflixs-decision-to-block-internet-content-tell-us-about-
internet-policy/.
Question 1b. How important is it to maintain the legacy/copper
communications network as we transition to IP? If so, for how long? If
not, please explain why not.
Answer. It is, of course, essential to continue providing service
to customers of the obsolete PSTN network until such time as a final
cutover date is set and approved. (As for the actual infrastructure
technology, copper is perfectly capable of carrying IP traffic at
broadband speeds for short distances and of course does so today. The
retirement of the PSTN network and the replacement of copper are not
the same thing, and I presume the question refers to the former and not
the latter.)
It is, however, essential that Congress and the FCC move quickly to
organize and establish a date certain for moving the remaining PSTN
customers to better and cheaper IP networks. The transition is already
happening, driven by consumers who see no benefit to continue
maintaining connections to the limited and technically-inferior PSTN
network. Already, over half of U.S. homes have voluntarily cut the cord
to the PSTN network, integrating their voice communications with other
IP-based services offered by cable, fiber, satellite, and mobile
providers. By 2015 that number may reach as high as 75 percent.
As more customers abandon the PSTN network, the cost per remaining
user of maintaining old and obsolete equipment and other infrastructure
has already become uneconomic. It is also wasting money that would be
far more effectively spent as capital investment in IP networks. The
continued maintenance of the PSTN network is throwing good money after
bad.
That is why it is essential, following the proposed trials, to set
a date certain for complete shutdown of the PSTN network and use the
remaining time to resolve any lingering technical issues and to ease
the transition of remaining PSTN customers to alternative IP networks.
As I explained in my written testimony:
PSTN providers can't beat better and cheaper with worse and
more expensive, especially when worse and more expensive has to
stay that way as a matter of law.
They must move faster. Customers are abandoning wired telephone
service in favor of fiber and cable-based Voice over IP (VoIP)
and mobile broadband at a remarkable rate. At its peak, the
PSTN network connected nearly every American. By the end of
2011, less than half of all American homes still had a wired
connection. That number could fall to as little as 25 percent
by 2015.\12\
---------------------------------------------------------------------------
\12\ Larry Downes, Telcos Race Toward an all-IP Future, CNET
News.com, Jan 8, 2013, available at http://ces.cnet.com/8301-34435_1-
57562644/telcos-race-toward-an-all-ip-future/.
The disruptor here, of course, is networking technology that
operates natively using the packet-switching protocols of the
Internet. IP networks, crucially, don't care if the packets
contain voice, data, or video content. While phone companies
once dismissed IP as unsuitable for voice communications,
carriers large and small have now embraced IP as the only
option to satisfy exploding demand of consumers, cloud-based
services, and the coming data deluge of machine-to-machine
---------------------------------------------------------------------------
communications known as ``the Internet of Things.''
That superior design has created an enormous black hole for
PSTN network operators. As fewer customers subscribe to
wireline services, the cost of maintaining aging copper and
analog switches is increasing dramatically, both in absolute
terms and on a per-customer basis. As much as 50 percent of
current wireline expenditures go toward maintenance. By
comparison, the operating expenses of native IP networks can be
as much as 90 percent less than for PSTN.\13\
---------------------------------------------------------------------------
\13\ Id. See also Larry Downes, AT&T Moves Dramatically Towards
`Internet Everywhere,' Forbes, Nov. 8, 2012, available at http://
www.forbes.com/sites/larrydownes/2012/11/08/att-moves-dramatically-
towards-internet-everywhere/.
To their credit, the incumbent providers are trying to retire
and replace what had been, until recently, their most valuable
assets. Both Verizon and AT&T have spent billions accelerating
the replacement of copper with fiber, and circuit-switched with
---------------------------------------------------------------------------
packet-switched equipment.
But turning off the old network isn't as simple as it sounds.
By law, carriers cannot retire the switched network without
Federal and perhaps state regulatory approval, even if superior
alternatives are in place. And the FCC and state regulators
have balked at giving permission for the switchover, calling
for more study on proposed trials for PSTN to IP switchovers in
test markets.\14\
---------------------------------------------------------------------------
\14\ Larry Downes, FCC Again Balks on Telephone Network Shutdown,
CNET News.com, May 14, 2013, available at http://news.cnet.com/8301-
1023_3-57584306-93/fcc-again-balks-on-telephone-network-shutdown/.
The longer the carriers are required to spend money maintaining
the obsolete networks, however, the less capital budget is
available to accelerate the replacement of aging and obsolete
equipment with better and cheaper IP technologies, including
fiber optics, digital switches, and upgrades to straining
---------------------------------------------------------------------------
cellular networks.
In the end, the real victims of the regulatory logjam are the
remaining wireline customers who are also, not surprisingly,
the ones least likely to be benefiting from Internet services.
The customer segments that are farthest behind in broadband
adoption, according to FCC data, are those most likely to be
relying on switched telephone networks as their only form of
communication access.\15\ These include rural users, seniors,
and low-income customers.
---------------------------------------------------------------------------
\15\ FCC, Eighth Broadband Progress Report, GN Docket 11-121 (Aug
21, 2012), 122 at p. 54, available at http://hraunfoss.fcc.gov/
edocs_public/attachmatch/FCC-12-90A1.pdf.
Getting these communities onto IP networks sooner rather than
later eliminates the need for expensive duplication of the
obsolete switched infrastructure. It will also make it easier
and less expensive for them to connect to other broadband
---------------------------------------------------------------------------
services including video and Internet access.
In that sense, allowing the carriers to accelerate the
transition to IP would overcome many of the obstacles that keep
20 percent of American adults from joining the Internet.
According to the Pew Internet Project, almost half of that
group cite as their primary reason not to connect a lack of
relevance to their needs, rather than cost.\16\ With IP-based
telephony in place, however, the relevance for employment,
education, health care, family life, entertainment and commerce
would be far easier to communicate.
---------------------------------------------------------------------------
\16\ Pew Internet and American Life Project, Digital Differences,
April 13, 2012, available at http://pewinternet.org/Reports/2012/
Digital-differences/Main-Report/Internet-adoption-over-time.aspx.
For Congress and the FCC, this is the moment of truth. The IP
Transition is gaining speed, and its ultimate completion is
inevitable. But even inevitable advances in technological
progress can be delayed significantly by over-regulation,
denying some consumers the full benefits of the Internet
---------------------------------------------------------------------------
ecosystem.
The FCC has an unavoidable role to play in the process. As
communications markets are being simultaneously destroyed and
recreated, regulations designed to dull the sharper edges of
once-static and siloed technologies are now, as the agency
recognizes, posing the very real danger of unintentionally
holding back the progress of innovation. The agency must
unravel itself from its complicated relationships with the
affected industries, and quickly.
To begin with, the FCC should expeditiously grant pending
petitions for trials to switchover PSTN networks to native IP.
And, while the trials are underway, the FCC should begin
planning a pro-transition agenda that can be enacted swiftly
upon successful completion of the trials--or modified as
necessary to adjust for any lessons learned.
Specifically, Congress and the FCC should:
1. Clearly define the IP Transition as a central Federal policy
objective and make clear its intentions that VoIP be left
unregulated.
2. The FCC should preempt state regulators' efforts to preserve PSTN
networks beyond their useful lives to the long-term detriment
of ratepayers.
3. Plan and set a date certain for PSTN retirement, based on the
results of market trials being proposed and lessons learned
during the successful transition from analog to digital
television.
4. Retire legacy Federal regulations that are unintentionally
slowing the transition to all-IP infrastructure and retarding
the adoption of broadband, especially among rural and low-
income populations.
5. Make clear that Title II regulations will never apply to IP
networks.
6. Refrain from asserting Title I ancillary authority to impose
mandated interconnection requirements on IP networks, and
instead leave interconnection in the hands of the private
parties exchanging the traffic.
There has been some progress in achieving these objectives,
albeit slow. The National Broadband Plan, in particular, showed
vision in urging the Commission to move immediately to
accelerate the transition away from circuit-switched networks
to native IP.\17\ As the Plan noted, ``[r]egulations require
certain carriers to maintain [legacy TDM networks]--a
requirement that is not sustainable--and lead to investments in
assets that could be stranded.'' \18\
---------------------------------------------------------------------------
\17\ See Connecting America: The National Broadband Plan, Sec. 4.5
at p. 59 (2010) (``National Broadband Plan''), available at http://
download.broadband.gov/plan/national-broadband-plan.pdf.
\18\ Id.
In creating the Technology Transitions Policy Task Force, the
FCC likewise took an important step to encourage the rapid
transition ``from special purpose to general purpose, from
circuit-switched to packet-switched, and from copper to fiber
and wireless-based networks.'' \19\ Then-Chairman Genachowski
noted at the time:
---------------------------------------------------------------------------
\19\ FCC, FCC Chairman Announces Formation of ``Technology
Transitions Policy Task Force'', (Dec. 10, 2012), http://www.fcc.gov/
document/fcc-chairman-announces-technology-transitions-policy-task-
force.
Technological transitions don't change the basic
mission of the FCC. But technology changes can drive
changes in markets and competition. And many of the
Commission's existing rules draw technology-based
distinctions. So the ongoing changes in our nation's
communications networks require a hard look at many
rules that were written for a different technological
and market landscape.\20\
---------------------------------------------------------------------------
\20\ Id.
The point of these farsighted statements is both clear and
accurate: Regulators should not pick winners and losers in the
broadband ecosystem. But that truism does not mean the
Commission should not take action to advance new technologies
that are clearly superior.\21\ IP networks, in design and
implementation, are in every relevant measure exponentially
better than PSTN. Lawmakers and regulators should continue to
hasten their adoption, focus on making the transition as smooth
as possible for all consumers and refrain from placing
regulatory impediments in the way of their success.
---------------------------------------------------------------------------
\21\ In nearly every government provision of spectrum in the last
hundred years, Congress has clearly picked what it felt were ``better''
technologies and used policy levers to promote their adoption.
Similarly, by excluding broadband Internet access from Title II
regulations in the 1996 Communications Act, Congress affirmatively and
wisely promoted an unregulated market for IP-based services, and
mandated the FCC to do the same. See, e.g., Communications Act of 1996,
47 U.S.C. Sec. Sec. 153(24), 230, 706 (1996). See also NCTA v. Brand X
Internet Services, 545 U.S. 967 (2005).
---------------------------------------------------------------------------
[. . .]
In encouraging the rapid transition of wireline providers to
all-IP networks, Congress should heed the lessons of the
earlier transition from analog to digital television (DTV). The
DTV experience underscores the importance of accelerating
deregulation of obsolete networks before consumers abandon
them, of setting and sticking to a date certain, and to
avoiding the temptation to prophylactically regulate for
consumers harms that have yet to appear.
At its height in the 1970s, 93 percent of all American homes
relied on antennas. But analog broadcast couldn't compete with
the quality or the quantity of cable channels. As digital
technology expanded the scope and efficiency of cable and later
fiber-based programming, it became clear that over-the-air
broadcasters would likewise need to convert to digital signals
to compete.
Shutting down analog broadcast, however, required government
coordination. In 1996, Congress mandated the conversion from
analog to digital broadcast in 1996, setting a deadline of 2006
and authorizing the FCC to coordinate the transition.
The coordinated switch to DTV was intended to make the highly-
regulated broadcasters more competitive with the relatively
unregulated cable industry.
How? Digital TV lowered costs and created new opportunities for
broadcasters. As part of the transition, for example,
broadcasters traded their analog radio spectrum allocations in
the 700 MHz band for a new 6 MHz block in the 600 MHz band.
Because digital signals are more compressed, each 6 MHz block
could be split and used for multiple channels, all of them
capable of high-definition broadcast, as well as new mobile
business opportunities for the broadcasters.
So far, however, few station operators have been able to make
use of that capacity to offer extra channels or to repurpose
underutilized spectrum for mobile or other premium services.
That's largely because, in the end, the DTV transition was
delayed until 2009. By then, over-the-air television had
already entered an unrecoverable dive in viewership and
revenue.\22\ According to research from the Consumer
Electronics Association, the decline in over-the-air audience
became irreversible between 2005, when the transition should
have happened, and 2009, when it finally did.\23\
---------------------------------------------------------------------------
\22\ See Sam Schechner and Rebecca Dana, Local TV Stations Facing a
Fuzzy Future, The Wall Street Journal, Feb. 10, 2009, available at
http://online.wsj.com/article/SB123422910
357065971.html.
\23\ CEA Study: Consumers are Tuning Out Over-the-Air TV, May 31,
2011, available at http://www.ce.org/News/News-Releases/Press-Releases/
2011-Press-Releases/20110531-CEA-Study-Consumers-Are-Tuning-Out-Over-
t.aspx.
Delays in the DTV transition were largely the result of
unfounded and exaggerated fears that some consumers would not
be ready in time. A 2006 article in Fortune, for example,
warned breathlessly that the DTV transition would ``render
about 70 million TV sets obsolete,'' and that ``for consumers
with one of those 70 million sets--many of whom are likely to
be poor, elderly or uneducated, being forcibly switched from
one technology to another will be a nightmare.'' \24\
---------------------------------------------------------------------------
\24\ Marc Gunther, Digital TV: Leaving Viewers in Limbo, Fortune,
Jan. 19, 2006, available at http://money.cnn.com/2006/01/04/technology/
pluggedin_digitaltv/index.htm.
---------------------------------------------------------------------------
[. . .]
The reality, of course, was very different. Consumers who
weren't already cable or satellite subscribers and whose
energy-inefficient tube television sets were too old to receive
digital signals were barely inconvenienced, let alone
``forcibly switched.''
Many had already moved to cable or satellite by the time the
DTV transition occurred. For the rest, all they had to do was
to buy and attach small digital converter boxes to their old
TVs. Under a plan implemented by the Department of Commerce,
consumers could even apply for up to two $40 coupons with which
to purchase the converters, funded by proceeds from the 700 MHz
spectrum auctions.
On the fateful day, June 12, 2009, according to Nielsen, almost
no one was left without television service. As Figure 2 shows,
nearly all ``unready homes'' had successfully made the
transition by using the converter box, or by switching to
digital cable or satellite. No television was rendered
``obsolete,'' let alone 70 million.\25\
---------------------------------------------------------------------------
\25\ Nielsen, The Switch from Analog to Digital TV, Nov. 2, 2009,
available at http://www.nielsen.com/us/en/newswire/2009/the-switch-
from-analog-to-digital-tv.html.
---------------------------------------------------------------------------
Figure 2--Consumers Adapted to the DTV Conversion
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: The Nielsen Company
Delaying the transition by three years, however, blunted the
potential of a coordinated and timely switchover in crucial
ways. Consumers had more time to switch to cable or satellite
to avoid dealing with the transition at all, imposing real
damage on broadcasters. That loss of viewers makes it harder to
this day for the broadcasters to offer new and competing
products using their new spectrum and digital technology
upgrades.
Ultimately, that translates to a loss to consumer of more
competition in the video marketplace. Delays that were intended
to protect consumers, in the end, did just the opposite.
As with DTV transition, however, ungrounded fears of what could
go wrong could continue to delay the IP transition, with
dangerous and unintended consequences for consumers--
particularly those for whom advocates most claim to be looking
out.
Question 2. Reform of the Universal Service Fund (USF)/creation of
the Connect America Fund (CAF) is critically important because millions
of Americans still lack access to high-speed broadband service in many
areas of the country. According to the National Broadband Plan,
broadband is available in 98 percent of the nation, but the national
adoption rate, according to the National Telecommunications and
Information Administration (NTIA) and Census data, is 72 percent. I
believe it is important for all Americans to have access to high-
capacity broadband service, and therefore, I am focused on policies
that help us to reach 100 percent coverage of U.S. households. However,
we have a limited amount of money that we can allocate as a nation to
rural broadband deployment, and I believe we should prioritize funding
to support buildout in unserved areas or areas below 4 mbps down/1
mbps. Typically, these areas are still unserved because of the high
cost of deployment and the low population density. Understandably, this
makes it difficult for private companies to deploy broadband in these
areas, and it is also the reason why policymakers decided to create
programs like USF/CAF--to serve hard-to-reach places in the country.
Question 2a. Do you believe CAF is adequately focused on broadband
deployment in unserved areas? If so, how long do you think it will take
to reach full deployment? If not, please explain what it would take to
buildout unserved areas of our country given that we only have
approximately $4.5 billion/year through USF.
Question 2b. Is the pace of reform moving too slowly?
Answer. My experience with CAF is insufficient to comment on these
questions. What is clear, however, is that there are direct economic
and societal benefits that derive from access to high speed broadband.
Efforts to foster more and faster broadband in areas that do not
currently have access to same would seem important, and worthy of close
analysis.
Though the FCC has done a worthy job in reforming USF over the last
two years, there is clearly still much to be done. As recent
announcements of settlements with Lifeline providers abusing the system
makes clear, there is still considerable waste, inefficiency, fraud and
corruption in the system.\26\
---------------------------------------------------------------------------
\26\ See Brendan Sasso, FCC Moves to Fine `Obamaphone' Companies
$14 Million, The Hill.com, Oct. 1, 2013, available at http://
thehill.com/blogs/hillicon-valley/technology/325779-fcc-moves-to-fine-
obamaphone-companies-14-million.
Question 3. Based on my experience in Virginia, it is not possible
to deploy fiber absolutely everywhere. Many areas of my state have
granite rockbeds, which make it prohibitively expensive to deploy
fiber. Therefore, I am supportive of cost effective deployment of
broadband technology to reach universal coverage. Although I recognize
that the focus of this hearing was on wireline issues, it seems to me
that we should consider the best technologies based on our national
---------------------------------------------------------------------------
goal of providing advanced communications services to all Americans.
Question 3a. Should the Federal Communications Commission (FCC)
focus more resources on best-available technology for unserved areas or
areas below 4/1? If so, please explain what else the FCC could do to
improve broadband coverage to unserved areas. If not, please explain
how we can reach full broadband deployment by focusing more on fixed
services, at a reasonable cost to taxpayers and consumers.
Question 3b. Please describe what role you see for other
technologies in terms of serving hard-to-reach areas in the near term.
Could we be more technology-neutral in our Federal broadband funding
programs?
Answer. I am not in a position to comment specifically on the
effectiveness of Federal broadband funding programs or the FCC's role
in improving coverage to those remaining areas of the U.S. that do not
have broadband access as that term is defined by the National Broadband
Plan.
But there are clearly other technologies besides fiber optic cable
that support broadband speeds. Cable, mobile, and satellite-based
broadband all have important roles to play in both the middle-mile and
last-mile Internet today, and will continue to do so. Broadband over
power lines remains a high-potential option as well, especially for
remote areas where power lines have already been deployed at high cost.
While experimentation with this approach in the U.S. has largely
stalled due to resistance and delays by the FCC to approve
applications, it is not too late to restart the industry.
Access, however, is not the most urgent issue. Rather, it is
adoption. In that sense, enabling the carriers to accelerate their
transition to all-IP infrastructure would overcome many of the
obstacles that keep 15 percent of American adults (mostly those over
age 65 or adults without a high school diploma) from joining the
Internet. According to the most recent Pew Internet Project survey,
more than half of that group cite as their primary reason not to
connect a lack of relevance to their needs or usability, rather than
cost or availability. (See Figure 3.) \27\
---------------------------------------------------------------------------
\27\ Kathryn Zickuhr, Who's Not Online and Why, Pew Internet and
American Life Project, September 25, 2013, available at http://
pewinternet.org/ /media//Files/Reports/2013/PIP
_Offline%20adults_092513.pdf.
---------------------------------------------------------------------------
Figure 3--Obstacles to Internet Adoption
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: Pew Research Center's Internet & American Life Project
Surveys.
With IP-based telephony in place, however, the relevance for
employment, education, health care, family life, entertainment and
commerce would be far easier to communicate. A transition to all-IP
networks, in other words, bring those Americans who have resisted the
Internet revolution at least one step closer to adoption--if only as a
side-effect.
As I wrote recently, the most current data on adoption issues
suggests that the best use of limited government resources may not be
subsidizing access or the build-out of network infrastructure in high-
cost areas. Rather, it may be in public education:
[G]overnments can play a critical role in encouraging the few
remaining Americans who have so far failed to see the benefit
of Internet adoption. But in allocating limited public
resources, it's essential to read the data for what it actually
says before deciding how to proceed.
For example, the most-frequently cited reason given by
Americans not to use the Internet, according to the Pew survey,
is that they are ``just not interested.'' Is that because the
Web really holds no relevance to them, or because the case for
connectivity just hasn't been made? Given the increased
importance of Internet technologies and protocols for basic
communications, entertainment, education, employment, health
care, and public safety, going online is becoming a crucial
part of daily life, especially for the groups who today have
the lowest levels of adoption. They just may not fully
appreciate the value to them of doing so.
Governments could be much more effective in using their bully
pulpit to make that case. The FCC's exceptional 2010 National
Broadband Plan, for example, included detailed descriptions of
the promise of the Internet to improve the lives of all
Americans in each of these core areas. Yet the agency did
almost nothing to promote the hard work of the plan's authors
once the document was published.
It would cost little for the FCC and the rest of the
administration to dust off the plan and highlight the vision it
painted for a fully connected America. This could take the form
of speeches, government websites, and public demonstrations
coordinated with industry leaders. Much of that activity
already exists; it just needs to be focused.
The FCC could also accelerate its ongoing efforts to remove
regulatory roadblocks, especially at the state and local level,
that cause unnecessary delay and cost in the deployment of
additional and critical broadband infrastructure. Despite a
modest ``shot clock'' established by the FCC in 2009, for
example, permit requests for new cell towers and equipment
changes on existing utility poles and buildings continue to
drag on for months or even years, often held back or even
denied based on little or no zoning-related justification.
Laying new fiber-optic cable, likewise, often requires
navigating a maze of local authorities.
The agency should also restart stalled efforts to begin trials
for a final switchover from the aging, obsolete public switched
telephone network to all-IP networks.
A majority of Americans have already cut the cord to the old
networks. Maintenance costs for providers who have to support
both the old and new networks are inhibiting even more
investments in broadband. Landline carriers have asked the FCC
for permission to conduct trials on switching over the
remaining customers to better and cheaper IP networks, but the
agency has stalled, with special-interest groups gumming up the
works.
Ironically, households still using analog telephone switches
are also those most likely not to be Internet users.
Accelerating the transition to IP networks would get those
customers onto the Internet, at least for voice services.
These are the kind of government interventions that will
actually help those few Americans who still don't see the value
of Internet adoption. And they require no new laws--just a
careful analysis of data that is already clear and convincing
for those who are willing to read it.\28\
---------------------------------------------------------------------------
\28\ Larry Downes, Who's Still Offline and Why? The Real Reasons,
CNET News.com, Sept. 30, 2013, available at http://news.cnet.com/8301-
1023_3-57605169-93/whos-still-offline-and-why-the-real-reasons/.
Question 4. Would more targeted broadband mapping--at the address
level, specifically--help to accelerate deployment to unserved areas?
If not, please explain why less granular data models are sufficient to
target deployment to unserved households. Do you believe the current
level of data gathered by the National Broadband Map contributes to
overbuilding? If not, please explain.
Answer. My experience with the National Broadband Map is
insufficient to comment on these questions.
Question 5. As many experts have noted, there is ``rural-rural
divide'' when it comes to the presence of broadband infrastructure in
rural America. According to the FCC, more than 83 percent of the
approximately 18 million Americans that lack access to residential
fixed broadband at or above the basic level of acceptable service
outlined in the National Broadband Plan live in areas served by price-
cap carriers. The FCC attempted to address this disparity by
establishing an incremental support component in the Phase I CAF Fund
for price cap carriers. The initial support was established at $300
million, but more than half of the allocated funds went unclaimed.
Different types of carriers have expressed opinions about whether or
not it was a good idea for the FCC to set aside this amount of money
even though the bulk of the $4.5 USF program was allocated to other
types of carriers.
Question 5a. Regardless of your views on the Phase I Fund, do you
think the FCC has done enough to provide coverage to the 14.9 million
people who still lack any sort of basic broadband service?
Question 5b. If so, when do you think we can expect to provide
broadband service to all Americans? If not, what else could the FCC do
to provide universal broadband service?
Answer. My experience with CAF is insufficient to comment on these
questions. Again, per my response to question 3 above, the more urgent
issue is not access but adoption. The FCC did an admirable job of
making the use cases for broadband adoption by all Americans in the
National Broadband Plan, but has done little since its publication to
underscore the benefits of broadband in education, employment, health
care, public safety, citizenship, government, and energy. Thus, I
believe it would be very productive if the FCC were to use its bully
pulpit to educate American consumers on the value of having access to
broadband.
However, I do not believe it is accurate to say that 18 million
Americans ``lack access to residential fixed broadband,'' or that 14.5
million of that number are rural Americans. Those numbers, which
originate with the FCC's most recent Broadband Progress Report,\29\ are
both misleading and highly inaccurate.
---------------------------------------------------------------------------
\29\ FCC, Eighth Annual Broadband Progress Report, GN Docket No.
11-121 (August 14, 2012), available at http://www.fcc.gov/reports/
eighth-broadband-progress-report .
---------------------------------------------------------------------------
For one thing, the FCC ended its data collection in June 2011. But
network providers and their investors have spent billions in
infrastructure improvements over the last two years, as they have every
year since the broadband revolution began. Between 2010 and 2011 alone,
when the FCC's data runs out, the number of Americans without access to
a single home broadband provider fell by 7.4 million, a number almost
certain to have dropped further since 2011.
More important, the FCC report completely ignores the availability
of mobile broadband. Although 4G and other networking technologies can
and do deliver speeds that exceed the FCC's broadband threshold, the
agency excluded mobile entirely from its statistics on access, citing a
lack of ``reliable'' data on precisely how many of the 19 million could
or even do get service from mobile broadband providers.
Rather than estimate, the FCC simply counted the entire wireless
industry as zero. Yet with the explosion in smartphone use, as every
consumer knows, wireless broadband growth far exceeds that for wired
broadband. Mobile carriers in the US, according to the same FCC report,
invested more than $25 billion in network improvements just in 2011,
compared with $18.6 billion in the 15 largest European economies
combined.
Including data on mobile broadband access provided in the FCC's
report but left out of its calculations, the number of Americans
without any home broadband provider falls as low as 5.5 million. That's
less than 2 percent of the population.
To put that number in perspective, consider that landline telephone
service never achieved more than 95 percent adoption in American homes.
Indeed, according to the U.S. Census Bureau, more than 3.5 million
Americans still lacked complete indoor plumbing as recently as 2011.
Yet universal telephone service has been the policy of the U.S. since
the formation of the FCC in 1934. And public efforts to improve
household sanitation predate the founding of the Republic.
So the fact that broadband Internet access and adoption are still
less than 100 percent less than two decades after its invention, while
unfortunate, is hardly a crisis. Even excluding mobile broadband, the
FCC report found that 95 percent of American homes have access to a
broadband connection, in most cases with two or more choices of
provider. We can and will do better, but realistically, if herculean
efforts over decades or even centuries have failed to achieve 100
percent adoption of more basic technologies, it seems unlikely that any
intervention over any period of time will ultimately achieve complete
Internet adoption, let alone at broadband speeds.
Question 6. There has been a great deal of discussion about the
FCC's models for CAF. Given that technology is advancing at a rapid
rate, it seems like the FCC should be focused on establishing a cost
model that is updated frequently enough to provide an accurate sense of
the marketplace.
Question 6a. How important is the timeliness of the FCC's proposed
cost model in delivering service to unserved areas?
Question 6b. Do you agree with the revisions the FCC has made to
its cost model? Does the cost model accurately predict needs/services
under CAF? If not, or if you believe the FCC model should lock in rates
for a longer period of time, please explain how a longer view would
deliver broadband to unserved areas more quickly than an annualized
model.
Answer. My experience with CAF is insufficient to comment on these
questions.
Question 7. A report by the nonpartisan Congressional Research
Service analysis captures one of the major challenges of USF reform as
follows:
``Smaller, rural, rate-of-return carriers are particularly
dependent on USF subsidies, and have expressed concern that the
reforms that the USF Order will implement could place them
under financial hardship. Many RUS telecommunications and
broadband borrowers (loan recipients) receive high cost USF
subsidies. In many cases, the subsidy received from USF helps
provide the revenue necessary to keep the loan viable. The
Telecommunications Infrastructure Loan program is highly
dependent on high-cost USF revenues, with 99 percent (476 out
of 480 borrowers) receiving interstate high-cost USF support.
This is not surprising, given that the RUS Telecommunications
Loans are available only to the most rural and high-cost areas
(towns with populations less than 5,000). Regarding broadband
loans, 60 percent of BIP (stimulus) borrowers draw from state
or interstate USF support mechanisms, while 10 percent of farm
bill (Rural Broadband Access Loan and Loan Guarantee Program)
broadband borrowers receive interstate high-cost USF support.
Thus, to the extent that USF may be reformed, this could have
an impact on the viability of RUS telecommunications and
broadband loans, and ultimately the overall financial health of
the carrier.
Although the FCC included a waiver process in its USF Order for
those carriers that felt they would be subject to significant
economic stress, due to the reforms, many smaller carriers
assert that the waiver process is too burdensome and difficult
and that the requirements for qualifying for relief are too
restrictive.''
Additionally, according to the U.S. Department of Agriculture,
demand for RUS loan funds was only 37 percent of loan funds
appropriated by Congress in FY 2012. This is indicative of the fact
that the restructuring and uncertainty around USF/CAF reform could
diminish the desirability of RUS broadband loans to borrowers going
forward.
Question 7a. Given that the RUS and USF broadband programs share
the goal of deploying broadband to rural America, and many RUS
borrowers appear to be significant beneficiaries of USF as well, are
these programs effectively targeted towards providing broadband to
unserved areas of the nation?
Question 7b. Are these programs the most cost-effective way for
Congress to fund rural broadband development? If so, please explain
why. If not, please share any ideas you may have regarding a more cost-
effective approach to encouraging broadband deployment.
Question 7c. Given that these two programs (USF and RUS) share the
same goals, to what extent are they duplicative and to what extent are
they complementary?
Question 7d. Do you think that the FCC waiver process, as designed
and described above, is appropriate? If so, why? If not, what changes
would you recommend?
Answer. My experience with RUS is insufficient to comment on these
questions.
______
Response to Written Questions Submitted by Hon. Mark Warner to
Gigi B. Sohn
Question 1. With respect to the coming IP transition and advancing
technology, which specific requirements from the Telecommunications Act
of 1996 are the most important to maintain to ensure fair competition
in the marketplace?
Question 1a. For example, the 1996 Act has clear interconnection
requirements. Do you believe that these provisions are technology-
neutral and should apply in an IP-based network? If not, please explain
why not.
Question 1b. How important is it to maintain the legacy/copper
communications network as we transition to IP? If so, for how long? If
not, please explain why not.
Answer. The challenge of the IP transition is for the country to
agree upon what fundamental principles should guide any future
statutory revision process. The interconnection requirements of the
Communications Act of 1996 are a good example. Section 251 is
technology neutral. It applies to copper lines as equally as it does to
interconnected VoIP. The fundamental principle at play is, does the
network connect to everyone? For example, does a resident in Wise,
Virginia know that when they make a call to family in Richmond or New
York, the providers will connect as one large network? Smaller
providers in rural areas should not have to pay a premium to connect to
larger incumbent carriers. The phone system has always worked as one
network and this fundamental principle must be maintained as we make
the transition to IP.
Additionally, competition provisions in the Communications Act
provide for the connection of a variety of competitive services over
the network that have brought new innovations to consumers, such as
home security systems and telemedicine services. If we as a nation
decide that we still value competitive services that ride over the
network, then we must ensure that we maintain policies that protect
competition for these innovative services.
In regard to how important it is important to maintain copper
networks, it is important to point out that we are already
transitioning away from copper networks. For example, there is no
longer functioning copper networks on most of Fire Island, New York
following the destruction of Hurricane Sandy. Verizon, the only network
provider on the island, is deploying fiber to its consumers as a
replacement. In other words, for communities like Fire Island, the
transition has already happened.
It is not the material or technology of the network that is
important, it is that the new network and the policies supporting it do
not take a step back in quality and consumer protections that have
expected for decades. Americans do not care if the wire running to
their home is copper or fiber, they care that they don't lose access at
a reasonable cost. Does it works reliably, and with the privacy and
other consumer protections we expect? Will it work when there is a
storm or a medical emergency? These are the sorts of questions that
Americans are concerned with.
The question of ``how long'' is why real trials to answer these
technological questions must be conducted by the FCC. Americans deserve
to know that when the Federal Government allows companies to turn one
network off, the replacement will not be a downgrade in service. We do
not use our consumers as guinea pigs when it comes to access to
critical communications. Once we determine what is required to ensure
Americans are able to receive comparable service, we will have a sense
of how long the dependability of TDM networks will be necessary.
Question 2. Reform of the Universal Service Fund (USF)/creation of
the Connect America Fund (CAF) is critically important because millions
of Americans still lack access to high-speed broadband service in many
areas of the country. According to the National Broadband Plan,
broadband is available in 98 percent of the nation, but the national
adoption rate, according to the National Telecommunications and
Information Administration (NTIA) and Census data, is 72 percent. I
believe it is important for all Americans to have access to high-
capacity broadband service, and therefore, I am focused on policies
that help us to reach 100 percent coverage of U.S. households. However,
we have a limited amount of money that we can allocate as a nation to
rural broadband deployment, and I believe we should prioritize funding
to support buildout in unserved areas or areas below 4 mbps down/1
mbps. Typically, these areas are still unserved because of the high
cost of deployment and the low population density. Understandably, this
makes it difficult for private companies to deploy broadband in these
areas, and it is also the reason why policymakers decided to create
programs like USF/CAF--to serve hard-to-reach places in the country.
Question 2a. Do you believe CAF is adequately focused on broadband
deployment in unserved areas? If so, how long do you think it will take
to reach full deployment? If not, please explain what it would take to
buildout unserved areas of our country given that we only have
approximately $4.5 billion/year through USF.
Question 2b. Is the pace of reform moving too slowly?
Answer. I agree that the Connect America Fund (CAF) is an important
piece of the puzzle of making broadband accessible to all Americans.
The difficulty in structuring a fund to support broadband deployment is
that the standard of what is considered adequate service is a moving
target over time. The National Broadband Plan set a standard of 4mbps
down/1mbps up because of the capabilities that such a service provides.
However as we see new innovative, and higher bandwidth services become
more widely available (i.e., HD video conferencing) the definition of
what is unserved is likely to change. The more funding that is
available to support broadband deployment in unserved areas (CAF or
otherwise), the faster the country will be able to reach near-full
deployment as we have with phone service. This is why it is essential
that the FCC complete the process of reforming the Universal Service
Fund (USF), including reform of the contributions side in order to
broaden the base of revenue for the fund.
While Public Knowledge supports the creation of the CAF, I
understand that there have been many concerns raised by stakeholders
about the formulas used to determine subsidy levels. It is important
that the FCC work with stakeholders to address these concerns and
ensure that the CAF is making efficient use of the billions of
consumer's fees that make the CAF subsidies possible. The pace of
reform has slowed under a 3 member Commission, but I trust that the FCC
will be able to resume the USF reform process when a permanent chair is
sworn in.
Question 3. Based on my experience in Virginia, it is not possible
to deploy fiber absolutely everywhere. Many areas of my state have
granite rockbeds, which make it prohibitively expensive to deploy
fiber. Therefore, I am supportive of cost effective deployment of
broadband technology to reach universal coverage. Although I recognize
that the focus of this hearing was on wireline issues, it seems to me
that we should consider the best technologies based on our national
goal of providing advanced communications services to all Americans.
Question 3a. Should the Federal Communications Commission (FCC)
focus more resources on best-available technology for unserved areas or
areas below 4/1? If so, please explain what else the FCC could do to
improve broadband coverage to unserved areas. If not, please explain
how we can reach full broadband deployment by focusing more on fixed
services, at a reasonable cost to taxpayers and consumers.
Question 3b. Please describe what role you see for other
technologies in terms of serving hard-to-reach areas in the near term.
Could we be more technology-neutral in our Federal broadband funding
programs?
Answer. Support for deployment of broadband should be technology
neutral, but it should not be standards neutral. If a technology cannot
meet certain basic standards that provide for basic IP enabled
broadband services then it is not a wise investment for the FCC and
other Federal broadband funding programs. Standards typically start
with speed, but due to the transition of the phone system to all IP
networks, it makes sense to include other quality standards such as
latency and reliability. The Federal Government can improve broadband
coverage by completing the transition of Federal programs such as USF
to fully support broadband. As I addressed in question #2, it is
essential that the FCC complete the process of reforming the Universal
Service Fund (USF), including reform of the contributions side in order
to broaden the base of revenue for the fund. Public Knowledge also
supports the transition of the USF Lifeline program to broadband as we
have done with eRate and the CAF. Technology neutral funding programs
such as USF/CAF provide the flexibility to develop and invest in
innovative ways to deploy in rural areas. For example, recent advances
in the use of TV White Spaces (TVWS) have demonstrated the potential to
provide a wireless broadband service in high-cost rural areas. The
excellent propagation properties of the TVWS band combined with the
lower cost of deployment makes this potential a possible solution for
areas of Virginia and other states that face challenges to fiber
deployment for various reasons.
Question 4. Would more targeted broadband mapping--at the address
level, specifically--help to accelerate deployment to unserved areas?
If not, please explain why less granular data models are sufficient to
target deployment to unserved households. Do you believe the current
level of data gathered by the National Broadband Map contributes to
overbuilding? If not, please explain.
Answer. More granular data could make a real difference as the
National Broadband Map is only as good as the data provided. National
Broadband Map data is self-reported by broadband providers and some
stakeholders have found the map to be inaccurate at times. Broadband
providers may show that a census block is served when in truth it is
only partially served. Americans living in the unserved portions of
census blocks may suffer from a lack of connectivity due to the cost to
deploy to their part of the census block, while the National Broadband
Map and Federal programs using the Map ignore their lack of access.
While more granular data in broadband mapping would create a more
accurate picture of the need for deployment, broadband providers will
not deploy to streets and addresses that are currently unserved unless
there is a business case to do so, or the Federal Government mandates
that they serve everyone. The repeal of many state level Carrier of
Last Resort (COLR) policies has reduced the commitment to rural phone
deployment that drove broadband providers that offer phone service to
deploy fully in service areas. As the IP transition continues, we must
ensure that our policies remain committed to serving to all Americans.
IP networks deployed as phone networks provide the added opportunity to
bring high speed broadband services as well.
National Broadband Map data is provided by broadband providers at
the census block level, the smallest geographic area used to track
demographics before moving to the address level. If data from the
providers show that there are unserved in a census block, it is
unlikely that funding directed at these blocks would lead to
overbuilding. However we should take into account that providers often
must build in surrounding areas to make the new deployment profitable.
While this additional deployment create competition for neighboring
providers, it benefits unserved Americans by making their newly
deployed broadband affordable.
Question 5. As many experts have noted, there is ``rural-rural
divide'' when it comes to the presence of broadband infrastructure in
rural America. According to the FCC, more than 83 percent of the
approximately 18 million Americans that lack access to residential
fixed broadband at or above the basic level of acceptable service
outlined in the National Broadband Plan live in areas served by price-
cap carriers. The FCC attempted to address this disparity by
establishing an incremental support component in the Phase I CAF Fund
for price cap carriers. The initial support was established at $300
million, but more than half of the allocated funds went unclaimed.
Different types of carriers have expressed opinions about whether or
not it was a good idea for the FCC to set aside this amount of money
even though the bulk of the $4.5 USF program was allocated to other
types of carriers.
Question 5a. Regardless of your views on the Phase I Fund, do you
think the FCC has done enough to provide coverage to the 14.9 million
people who still lack any sort of basic broadband service?
Question 5b. If so, when do you think we can expect to provide
broadband service to all Americans? If not, what else could the FCC do
to provide universal broadband service?
Answer. As I addressed in question #2, it is essential that the FCC
complete the process of reforming the Universal Service Fund (USF),
including reform of the contributions side in order to broaden the base
of revenue for the fund. While Public Knowledge supports the creation
of the CAF, I understand that there have been many concerns raised by
stakeholders about the formulas used to determine subsidy levels. It is
important that the FCC work with stakeholders to address these concerns
and ensure that the CAF is making efficient use of the billions of
consumer's fees that make the CAF subsidies possible. As the National
Broadband Plan noted, Congress could choose to appropriate more funding
to the CAF and other broadband deployment programs if they wished to
accelerate the efforts beyond the limits of the $4.5 million CAF.
Question 6. There has been a great deal of discussion about the
FCC's models for CAF. Given that technology is advancing at a rapid
rate, it seems like the FCC should be focused on establishing a cost
model that is updated frequently enough to provide an accurate sense of
the marketplace.
Question 6a. How important is the timeliness of the FCC's proposed
cost model in delivering service to unserved areas?
Question 6b. Do you agree with the revisions the FCC has made to
its cost model? Does the cost model accurately predict needs/services
under CAF? If not, or if you believe the FCC model should lock in rates
for a longer period of time, please explain how a longer view would
deliver broadband to unserved areas more quickly than an annualized
model.
Answer. As important as timeliness is to delivering critical
broadband services, it is equally important for the FCC to get it
right. As I have previously noted, while Public Knowledge supports the
creation of the CAF, I understand that there have been many concerns
raised by stakeholders about the formulas used to determine subsidy
levels. It is important that the FCC work with stakeholders to address
these concerns and ensure that the CAF is making efficient use of the
billions of consumer's fees that make the CAF subsidies possible.
At a high level, the CAF cost model must be equitable, taking into
account both the variety regional difference that impact cost, as well
as comparison of the costs of similarly situated companies. In the end
however, if the amount of funds in the CAF remain relatively constant,
there will always be winners and losers when models are adjusted.
Question 7. A report by the nonpartisan Congressional Research
Service analysis captures one of the major challenges of USF reform as
follows:
``Smaller, rural, rate-of-return carriers are particularly
dependent on USF subsidies, and have expressed concern that the
reforms that the USF Order will implement could place them
under financial hardship. Many RUS telecommunications and
broadband borrowers (loan recipients) receive high cost USF
subsidies. In many cases, the subsidy received from USF helps
provide the revenue necessary to keep the loan viable. The
Telecommunications Infrastructure Loan program is highly
dependent on high-cost USF revenues, with 99 percent (476 out
of 480 borrowers) receiving interstate high-cost USF support.
This is not surprising, given that the RUS Telecommunications
Loans are available only to the most rural and high-cost areas
(towns with populations less than 5,000). Regarding broadband
loans, 60 percent of BIP (stimulus) borrowers draw from state
or interstate USF support mechanisms, while 10 percent of farm
bill (Rural Broadband Access Loan and Loan Guarantee Program)
broadband borrowers receive interstate high-cost USF support.
Thus, to the extent that USF may be reformed, this could have
an impact on the viability of RUS telecommunications and
broadband loans, and ultimately the overall financial health of
the carrier.
Although the FCC included a waiver process in its USF Order for
those carriers that felt they would be subject to significant
economic stress, due to the reforms, many smaller carriers
assert that the waiver process is too burdensome and difficult
and that the requirements for qualifying for relief are too
restrictive.''
Additionally, according to the U.S. Department of Agriculture,
demand for RUS loan funds was only 37 percent of loan funds
appropriated by Congress in FY2012. This is indicative of the fact that
the restructuring and uncertainty around USF/CAF reform could diminish
the desirability of RUS broadband loans to borrowers going forward.
Question 7a. Given that the RUS and USF broadband programs share
the goal of deploying broadband to rural America, and many RUS
borrowers appear to be significant beneficiaries of USF as well, are
these programs effectively targeted towards providing broadband to
unserved areas of the nation?
Question 7b. Are these programs the most cost-effective way for
Congress to fund rural broadband development? If so, please explain
why. If not, please share any ideas you may have regarding a more cost-
effective approach to encouraging broadband deployment.
Question 7c. Given that these two programs (USF and RUS) share the
same goals, to what extent are they duplicative and to what extent are
they complementary
Question 7d. Do you think that the FCC waiver process, as designed
and described above, is appropriate? If so, why? If not, what changes
would you recommend?
Answer. The targeting of the RUS and USF programs is not effective
due to the fact that both programs give to the same projects. Loans
should be offered to borrowers based on the ability of companies to
create profits and pay them back, not based on the Federal Government's
ability to provide the funding to pay itself back through CAF grants.
While the reforms of the USF/CAF have created uncertainty for these
loans, perhaps this will provide RUS and the FCC the opportunity to
gradually create reasonable rules to eliminate the overlap of their
borrowers and grantees.
Keeping the two group separate would be a more cost-effective way
of funding broadband deployment. Given the high cost of deployment, it
would make more sense to structure RUS loans and the CAF in a more
complementary way. It is appropriate for the FCC to have designed a
waiver process to help the two agencies transition away from their
overlapping financial arrangements. It is difficult for this transition
process to be painless, but it is important to be clear that, in the
end, companies and the government will no longer structure Federal
loans based on the expectation of receiving a Federal grant.