DEPARTMENT OF TELECOMMUNICATIONS
AND INFORMATION SERVICE
San Francisco, CA 94103-0948
|In the Matter of|
Request for Information
In Response to the Board of
Supervisors Resolution 718-99
In response to Resolution No. 718-99 by the Board of Supervisors issued on July 26, 1998, the Department of Telecommunications and Information Services ("DTIS") issued a Request for Information ("RFI") seeking comment on open access implementation. In response, NetAction and other interested parties filed comments. In specific, NetAction demonstrated that the Board did not mandate open access and asked DTIS to consider carefully, on a principled policy basis, whether to support an open access mandate. NetAction also advocated that an open access requirement is not necessary, and indeed would hinder competition in the broadband and local competition markets. NetAction also argued that it is not a feasible policy goal for DTIS to implement an open access mandate. Now, by its attorneys, NetAction further addresses these concerns and those of other commenters in these reply comments.
Not surprisingly, the most vigorous proponents of open access include Pacific Bell and GTE and AOL. Generally, these commenters use scare tactics suggesting that consumers will enjoy broadband services without an open access mandate. Others exaggerate the benefits of open access as a necessary policy for "the essential openness of the Internet itself."
DTIS should reject any assertions that the health of the Internet, or even the broadband market, is somehow dependent on cable open access. Market realities in the broadband industry, along with the practical nature of the Internet, make it virtually impossible for any one entity or market segment to dominate the Internet or the broadband services. In fact, as NetAction and several other commenters demonstrate. An open access requirement would slow cable modem deployment by hindering operators' ability to cost justify infrastructure upgrades, and would, in turn, reduce competition in broadband and local telephony services.
Moreover, DTIS should view with particular suspicion the comments of GTE and Pacific Bell that mask a hidden open access agenda. "[T]heir true agenda is to interfere with and delay AT&T's efforts to compete for local telephone service." The more difficulty that AT&T and other cable operators face in using the cable plant as an alternative to the ILEC's local loop, the greater the opportunity for ILECs to maintain and extend their monopoly local control. Further, hampering cable modem providers through premature access mandates would help, not threaten, the ILECs' broadband deployment, which is primarily DSL focused. Indeed, the ILECs have long viewed the cable modem industry as a competitive challenge, and only began deploying DSL services seriously when threatened with this direct competition.
Accordingly, DTIS should carefully consider whether the positions advocated by these and other commenters are based on sound policy conclusions or on hidden agendas. Upon such a review, NetAction believes that DTIS should determine that it is premature to mandate open access, as there is no competitive need for such a requirement. In addition, DTIS should determine that such a mandate would harm cable modem operators' efforts to finance and upgrade their networks to provide competitive broadband and local telephony services. Moreover, DTIS should recognize that the technical, practical and regulatory implications of an open access mandate would extend beyond local government resources and would undermine efforts for a national framework.
A. The Board of Supervisors Did Not Mandate Open Access.
Several commenters have presumed that the Board of Supervisors mandated cable open access in its resolution. For instance, GTE argues that the RFI "properly indicates that the City has already adopted a policy in favor of open access, and that the purpose of the RFI is not to revisit that policy determination." Similarly, Pacific Bell states that the RFI is properly designed to implement the Board's open access policy. Also, AOL indicates support for DTIS' implementation of the Board's "open access resolution." In contrast, however, Excite@Home states that it "disagree[s] strongly with [the] apparent conclusion that government regulation is require by the Board of Supervisors' Resolution."
Excite@Home is correct that the RFI and commenters have wrongly presumed an open access mandate. The Board directs DTIS to "monitor the market for broadband access services in order to gauge the necessity or feasibility of imposing an open access requirement." Such a duty would not be necessary if the Board imposed an open access mandate.
B. A National Rather Than Fragmented Policy Toward Cable Open Access is Critical.
GTE argues that there are currently "successful models of cable open access" for San Francisco to follow, and where necessary, augment with jurisdiction-specific regulations. However, GTE's suggestion highlights a critical issue that weighs against an open access policy set at the county level. As NetAction indicated in its comments, the notion that each county in the United States would decide on whether to mandate open access in a manner that may or may not be consistent with those of other counties is a public policy nightmare, and, in turn, a tremendous business impediment. A look at state by state regulatory enforcement in the telecommunications industry is a testament to this fact. Even at the state level, telephone competitors have had to address different pricing and access enforcement rules in each jurisdiction, making it difficult to plan coherent business strategies. County by county distinctions, by 300,000 or more municipalities, would provide even less consistency and would be infinitely more complicated.
Several commenters also erroneously imply that implementing open access is a simple task that DTIS can complete by merely adopting a blanket nondiscriminatory requirement without any further significant involvement in the issue. For example, Pacific Bell argues that DTIS can implement an open access policy with "virtually no government intervention." Similarly, the Open Access Alliance and AOL argue that DTIS should leave pricing, business processes and network management to the marketplace for resolution. Litigation remedies, AOL also suggests, will address any issues that cannot be resolved in the marketplace. Other commenters more transparently argue for a regulatory involvement, while at the same time ask DTIS to assume a hands-off approach. For example, GTE argues that DTIS need not involve itself in pricing and business processes, but then later advises should "remain ready to insert itself more actively."
DTIS should reject the fallacy that it can just issue a simple one-time decision that will unilaterally ensure the availability of cable modem services without addressing the myriad of complex implementation issues that would remain. This is simply na´ve. "[T]here is no way for the DTIS to impose mandatory access without developing complex rules for defining and enforcing access obligations, costing and rate structures, and technical standards." An open access mandate inherently introduces ambiguity in business relationships by creating previously nonexistent rights. To create such rights without establishing specific parameters leaves that ambiguity unaddressed and limits companies' abilities to understand their own bargaining positions and properly consider regulatory ramifications in their marketplace dealings. Given the enormity of open access implementation, DTIS should consider carefully whether it is the appropriate institution to handle this matter, and indeed as SPUR recognizes, DTIS "must be careful not to advocate for a policy it may not have the budget, staff or technical capability to enforce."
Finally, several commenters try to mischaracterize the implementation of open access as a technically smooth process. In particular, some commenters cite to narrow technical trials that do not adequately account for scalability and other real-world implementation issues. This is hardly persuasive. As NetAction, the FCC and several commenters have recognized, scalability is key, and there is no clear picture of how to implement open access. Thus it is much too soon to tout the existence of simple technical solutions. Moreover, as AT&T recognized, DTIS should be particularly suspicious of so-called test trials which are engineered by GTE, which has questionable incentives for demanding open access, and involve friendly participants united by similar policy positions.
A. Analyses of the Cable Open Access Issue Should Turn Only on Current Market Realities.
NetAction again reiterates that DTIS must take a principled approach to the cable open access debate. Such an approach must involve analysis of whether market conditions support
or reject an open access policy. While commenters like the CCTA have properly supported a principled market analysis, other commenters have failed to adopt such an approach.
For example, GTE alleges that cable modem operators "control access to the Internet," and cites to a supposed historical misuse of monopoly power in the cable industry. In support of this claim, GTE points to traditional cable industry's exclusive distribution of its own video programming and requiring customers to buy basic packages to access premium services.
The notion of one company or even a few companies "control[ling] access to the Internet" is just not credible. As NetAction indicated in its comments, given broadband competition, particularly from DSL, coupled with the ability of users to navigate to any site they choose, no one company or even a handful of companies can control the vast network that is the Internet. In addition, there is a fundamental flaw in GTE's use of the cable industry's of video programming. The dynamics during the early days of cable video programming are significantly different that of the cable industry today, and most certainly different from the cable modem industry. Unlike the first appearance of traditional video programming, there are currently alternatives to cable for receiving video programming, and certainly alternatives to cable for broadband services. Moreover, the cable modem industry is not run by the traditional cable players. Cable modem service providers have recently paid billions for their network and were not in control of video programming and the cable industry during the period that GTE relies on as evidence of monopoly behavior.
B. The Market Conditions Do Not Justify Open Access.
Several commenters have either ignored or tried to dismiss the market realities that make an open access mandate poor public policy. AOL summarily concludes that open access "will not unduly increase cable operators' financial risk" without providing any analysis of real support of this conclusion. GTE argues that the market conditions "require the City's prompt intervention" to implement open access. In support of this argument, GTE cites to the fact that AT&T has made a $120 billion investment in cable infrastructure and will soon have control over 60% of the cable market, and that cable operators have 80% of the residential broadband market. GTE further argues that cable operators will dominate broadband in San Francisco because "practical substitutes are absent or limited," and that a significant number of San Francisco consumers will not be able to access DSL because customers must be within 2 miles of a central office.
GTE's arguments fail to demonstrate that there is a market necessity for open access. The fact that cable operators currently have 80% of the residential broadband market is not a dispositive fact in the open access debate. Looking at percentages of subscribership in this nascent environment, while helpful, hardly seems statistically significant and does not provide any certainty as to the direction of the broadband market or the cable modem industry's future place in that market. Moreover, as NetAction indicated in its comments, the value of this figure is even more suspect in view of the fact that DSL service subscribership growth significantly outpaces that of cable modem service, due to DSL's infrastructure advantage. In addition, GTE is mistaken in its claim that the broadband alternatives to cable modem services are "absent or limited." A preponderance of DSL competitors have launched their services in California cities, like San Francisco, that are very receptive to DSL services. In addition, while current DSL technologies are limited by distance, GTE has also grossly exaggerated the limitations of DSL and the ability of customers to access those technologies. The truth of the matter is that while GTE's limited DSL offerings may only allow service within 2 miles of the CO, the DSL services of numerous DSL competitors reach customers at distances of over 4 miles beyond central offices. Also, while GTE heralds the speed superiority of cable modem over DSL, GTE ignores the fact that cable operators face significant technical challenges including the limitation that only 25% of cable lines are currently ready for two-way traffic at high-speeds.
Furthermore, GTE's recognition of the enormous sums that AT&T has spent on cable infrastructure weighs against, and not in favor of, open access. As NetAction also discussed in its comments, the significant sums that cable operators have paid to acquire their infrastructure, coupled with the significant sums that they will have to expend to upgrade that infrastructure to support cable modem service, require that cable operators have the assured opportunity to recoup those costs. An open access mandate would prevent this assurance.
Finally, it is preposterous that GTE would posture that regulating the cable industry would improve broadband services, while GTE has spent the last two years arguing that federal deregulation "provides the incentives to ILECs to invest in these needed advanced technologies" and that without such deregulation, the broadband industry will not take off and there will be a digital divide. In fact the exact opposite is closer to reality: regulation is a necessity and much more appropriate for decade-old entrenched telephone monopolies that have easily converted their bottleneck control over the local loop and customer base into an advantage in the DSL market. This is quite unlike the cable industry where the so-called dominant players are newly minted plant owners without a history of rate return and embedded customer base to support expensive infrastructure purchases and upgrades.
Several carriers argue that an open access requirement will protect against content discrimination on the Internet. For instance, the Open Access Alliance argues that "access to information over the internet is adequately protected" by imposing an open access requirement. NetAction supports consumers' right to access web content of their choice, but NetAction does not believe that mandating open access on cable operators will achieve this goal. Moreover, as Excite@Home indicates, there are significant consumer benefits in the network management features that some commenters have criticized. For instance, caching is a practice that is utilized universally throughout the industry by AOL and other ISPs as an effective way to "maximize the utility of popular web content and make the service more appealing to subscribers." In contrast, the only impact on content that mandated access would have is to limit the ability of cable modem operators to manage and deliver effectively all content, not just their own.
For all of these reasons, NetAction respectfully requests that DTIS refrain from implementing an open access requirement. The current market dynamics are such that an open access mandate is not necessary to ensure competitive behavior, but in fact would hinder the evolution of the broadband market as well as in overall local telephony competition.
|Of Counsel |
Executive Director Glenn B. Manishin
Blumenfeld & Cohen - Technology Law Group
1625 Massachusetts Ave, Suite 300
Washington, D.C. 20036
601 Van Ness Ave., #631
San Francisco, CA 94102
Dated: November 8, 1999
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