# **BROADBAND**

**TODAY**

[A Staff Report to]{.smallcaps}

[William E. Kennard, Chairman]{.smallcaps}

[Federal communications Commission]{.smallcaps}

[On industry Monitoring Sessions]{.smallcaps}

[Convened by Cable Services Bureau]{.smallcaps}

[Deborah A. Lathen]{.smallcaps}

[Bureau Chief]{.smallcaps}

[Cable Services Bureau]{.smallcaps}

[October 1999]{.smallcaps}

TABLE OF CONTENTS

# **FOREWORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6**

**EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . 8**

I.  **BROADBAND: THE DEBATE OVER ACCESS . . . . . . . . . . . . . . . .
    . . . 9**

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A.  **The Debate Defined . . . . . . . . . . . . . . . . . . . . . . . .
    . . . . . . . . . . . . . . . . . 9**

##  The Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

> The Parties **. . . . . . . . . . . . . . . . . . . . . . . . . . . .
> . . . . . . . . . . . . . . . . . . 10**
>
> Arguments For Mandated Open Access **. . . . . . . . . . . . . . . . .
> . . . . . . 11**
>
> Arguments Against Mandated Open Access **. . . . . . . . . . . . . . .
> . . . . 11**

B.  **Roots of the Debate . . . . . . . . . . . . . . . . . . . . . . .
    . . . . . . . . . . . . . . . . . . 12**

## The First 706 Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

> The AT&T/TCI Merger**. . . . . . . . . . . . . . . . . . . . . . . . .
> . . . . . . . . . . .** **12**
>
> AT&T/TCI v. City of Portland **. . . . . . . . . . . . . . . . . . . .
> . . . . . . . . . . 13**

C.  **Recent Developments . . . . . . . . . . . . . . . . . . . . . . .
    . . . . . . . . . . . . . . . . 14**

## Broward County. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

> San Francisco**. . . . . . . . . . . . . . . . . . . . . . . . . . . .
> . . . . . . . . . . . . . . . .** **14**
>
> City of Fairfax **. . . . . . . . . . . . . . . . . . . . . . . . . .
> . . . . . . . . . . . . . . . . .** **14**
>
> Other Localities**. . . . . . . . . . . . . . . . . . . . . . . . . .
> . . . . . . . . . . . . . . . .** **15**
>
> Congressional Action**. . . . . . . . . . . . . . . . . . . . . . . .
> . . . . . . . . . . . . . .** **15**
>
> Federal Policy **. . . . . . . . . . . . . . . . . . . . . . . . . . .
> . . . . . . . . . . . . . . . .15**

# **TECHNICAL BACKGROUND** **. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16**

A.  **What is Broadband? . . . . . . . . . . . . . . . . . . . . . . . .
    . . . . . . . . . . . . . . . .** **16**

> As Defined in the Section 706 Report **. . . . . . . . . . . . . . . .
> . . . . . . . . .17**
>
> The Definition of Broadband is Elastic and Does Not Include
>
> Content**. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> . . . . . . . . . . . . . . .17**

# **Cable Broadband. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18**

> Changing Architecture**. . . . . . . . . . . . . . . . . . . . . . . .
> . . . . . . . . . . . . . 18**
>
> Hybrid Fiber-Optic Coaxial Cable (HFC) **. . . . . . . . . . . . . . .
> . . . . . . .18**
>
> Increased Bandwidth, Cleaner Transmission **. . . . . . . . . . . . .
> . . . . . .** **18**
>
> Not Without Problems**. . . . . . . . . . . . . . . . . . . . . . . .
> . . . . . . . . . . . . .** **19**

B.  **Telephone Company Broadband- Digital Subscriber Lines (xDSL). .
    20**

C.  **Wireless Technologies: Fixed Wireless and Satellite . . . . . . .
    . . . . . . .21**

# **THE BROADBAND INDUSTRY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23**

A.  **Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
    . . . . . . . . . . . . . . . . . . . . . 23**

> Narrowband Still Dominant**. . . . . . . . . . . . . . . . . . . . . .
> . . . . . . . . . . . 23**

B.  **Internet Over Cable. . . . . . . . . . . . . . . . . . . . . . . .
    . . . . . . . . . . . . . . . . . 23**

> Cable Modem Deployment: Over 1 Million Subscribers **. . . . . . . . .
> .25**
>
> Industry Projections for Cable Modem Deployment and Plant
>
> Upgrades**. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> . . . . . . . . . . . . . . . . 26**

C.  **DSL Deployment. . . . . . . . . . . . . . . . . . . . . . . . . .
    . . . . . . . . . . . . . . . . . 27**

> Industry Projections and Announcements for DSL**. . . . . . . . . . .
> . . . . 28**

D.  **Wireless Technologies: Fixed Wireless and Satellite . . . . . . .
    . . . . . . 29**

### 

# **PRELIMINARY FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31**

**A. The Cable Bureau's Monitoring Sessions. . . . . . . . . . . . . . .
. . . . . . . . 31**

**B. Participants. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . 31**

**C. Questions Posed to Participants. . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . 32**

**D. Responses and Preliminary Findings. . . . . . . . . . . . . . . . .
. . . . . . . . . . 32**

1.  The broadband industry is nascent **. . . . . . . . . . . . . . . .
    . . . . . . . . . . . 32**

2.  Cable modem deployment spurs alternative broadband

> technologies **. . . . . . . . . . . . . . . . . . . . . . . . . . . .
> . . . . . . . . . . . . . . . . . 33**

3.  Regulation or the threat of regulation ultimately slows deployment
    of broadband. **. . . . . . . . . . . . . . . . . . . . . . . . . .
    . . . . . . . . . . . . . . . . . . . . 33**

4.  Market forces will compel cable companies to negotiate access
    agreements with unaffiliated ISPs, preventing cable companies from
    keeping systems closed and proprietary. **. . . . . . . . . . . . .
    . . . . . . . . . . 34**

5.  If market forces fail and cable becomes the dominant means of
    Internet access, regulation might then be necessary to promote
    competition. **. 35**

6.  There was no consensus on how to implement "open access" from a
    regulatory perspective. **. . . . . . . . . . . . . . . . . . . . .
    . . . . . . . . . . . . . . . 36**

7.  There was no consensus on how to implement "open access" from a
    technical perspective. **. . . . . . . . . . . . . . . . . . . . . .
    . . . . . . . . . . . . . . . 39**

8.  Rapid nationwide broadband deployment depends on a national

> policy **. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> . . . . . . . . . . . . . . . . . . . 39**

II. **ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
    . . . . . . . . . . . . . . . . . . . . . . 41**

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A.  **Risks of the Commission Continuing Its Policy of Regulatory**

> **Restraint . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> . . . . . . . . . . . . . . . . . . . . . 41**

B.  **Benefits of the Commission Continuing Its Policy of Regulatory
    Restraint . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
    . . . . . . . . . . . . . . . . . . . . . 44**

C.  **Evidence the Commission's National Broadband Policy is
    Facilitating Vigorous Deployment and Competition . . . . . . . . . .
    . . . . . . . . . . . . . . 46**

**VI. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . 47**

**ENDNOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . 48**

**APPENDIX A: Breakdown of Online Universe**

**APPENDIX B: Residential Broadband Subscribers 1999 -- 2007**

**APPENDIX C: Questions Submitted to Panelists**

**GLOSSARY**

### **The Blind Man and the Elephant**

### 

### It was six wise men of Indostan

*To learning much inclined,*

*Who went to see the Elephant -- (though all of them were blind),*

*That each by observation---might satisfy his mind.*

*The First approached the Elephant,*

*And happening to fall*

*Against his broad and sturdy side---At once began to bawl:*

*"God bless me! But the Elephant---Is very like a wall!*

*The Second, feeling of the tusk,*

*Cried, "Ho! What have we here?*

*So very round and smooth and sharp -- To me 'tis mighty clear*

*This wonder of an Elephant -- Is very like a spear.*

*The Third approached the animal,*

*And happening to take*

*The squirming trunk within his hands, \-- Thus boldly up and spake:*

*"I see," quote he, "the Elephant---Is very like a snake!"*

*The Fifth who chanced to touch the ear,*

*Said: "Even the blindest man*

*Can tell what this resembles most; \-- Deny the fact who can,*

*This marvel of an Elephant -- Is very like a fan!"*

*The Sixth no sooner had begun*

*About the beast to grope,*

*Than seizing on the swinging tail --That fell within his scope,*

*"I see", said he, "the Elephant -- Is very like a rope!*

*And so these men of Indostan*

*Disputed loud and long,*

*Each in his own opinion --Exceeding stiff and strong*

*Though each was partly in the right --And all were in the wrong!*

*\--John Godfrey Saxe*

**FOREWORD**

In May and July 1999, at the request of Chairman Kennard, the Cable
Services Bureau, with the participation of the Common Carrier Bureau,
the Office of Plans and Policy, and the Office of Engineering and
Technology, convened a series of Monitoring Sessions on the state of the
broadband industry. The goal of these Sessions was threefold: (1) to
establish an ongoing dialogue with the major stakeholders involved in
the provision and delivery of broadband services to American consumers;
(2) to obtain a comprehensive perspective on the status of the
residential broadband industry; and (3) to receive perspectives on the
Commission's regulatory policy options.

We invited a distinguished and diverse group of experts, including
representatives from Internet service providers (ISPs), online service
providers (OSPs), local exchange carriers (LECs), long distance
telephone companies (IXCs), community organizations, financial analysts,
academics and local franchising authorities (LFAs). We asked these
participants to engage in candid, not-for-attribution discussion of the
major issues and challenges facing consumers, the industry, regulators
and policymakers with respect to the deployment of broadband services.

The following Report contains our summary and analyses of those
Monitoring Sessions, in addition to a current survey of the issues,
technological developments and market trends that have become integral
to the broadband debate.

We have learned a great deal about the state of the broadband industry
as a result of those sessions. We have discovered that broadband is an
awesome, yet largely inchoate, technology that will bring the Internet
and advanced services to millions of Americans. We have learned that the
Commission's longstanding de-regulatory policy toward enhanced services,
generally, and broadband services, particularly, has contributed to the
Internet's phenomenal growth. And we have learned that there is yet much
to learn.

We have learned that not even the experts are any more "sighted" at this
early stage of the rapidly evolving broadband industry than the wise men
of Indostan referred to at the beginning of this Report. While it is
clear that broadband will play an important role in the lives of most
Americans, it is not clear whether current systems will maintain their
same positions in the broadband industry, or whether new, and as yet
undiscovered systems will dominate the market in the long term. The
splintered and divergent views expressed by the experts in our
Monitoring Sessions demonstrate the difficulty in arriving at these
conclusions.

Although this Report endeavors to capture the sense of where things are
now, we recognize that the rapid pace of technological development and a
dynamic and competitive market will require our monitoring efforts to
continue. Thus, we anticipate holding future Monitoring Sessions with
other sectors of the broadband industry, including e-commerce and
Internet companies, to ascertain their views on the relevant issues.

We acknowledge and appreciate the cooperation and expert assistance of
the Directors and staff of the Office of Plans and Policy, the Office of
Engineering and Technology, and the Chief and staff of the Common
Carrier Bureau, without which we would not have been able to prepare
this Report.[^1]

*Deborah A. Lathen*

*Bureau Chief*

*Cable Services Bureau*

**Executive Summary**

This Report summarizes the results of two sets of Monitoring Sessions
conducted by the Cable Services Bureau on recent developments, major
issues, and the current state of the broadband industry.

At the outset, the Monitoring Sessions had two principal objectives:

(1) To ascertain a better understanding of the broadband industry since
    the filing of the Section 706 Report; and

(2) To answer the question: Should the government require cable
    companies to provide access to their plant by unaffiliated Internet
    and online service providers?

Part I examines the principal issues, parties and arguments in the open
access debate. This part traces the roots of the open access issue as
discussed in the FCC's first Section 706 Report to Congress, the
Commission's Memorandum and Order on the AT&T/TCI License Transfer, and
the Commission's "friend of the court" brief in *AT&T v. City of
Portland*. This part also discusses recent developments in legal,
legislative and regulatory proceedings, particularly actions by
municipalities.

Part II outlines the definition of broadband as defined in Section 706
of the Telecommunications Act of 1996 and provides an in-depth technical
discussion of broadband service and technology.

Part III discusses the broadband industry at large and provides a
snapshot of the state of cable modem, digital subscriber line (DSL),
fixed wireless, and satellite technologies for the provision of Internet
services. It also details the schedules and projections for deployment
of these technologies.

Part IV details the preliminary findings reached in the Monitoring
Sessions convened by the Bureau. This part also lists the participants
(by category) and summarizes the questions posed to the participants and
their responses.

Part V contains the conclusions reached as a result of the Report,
particularly whether the government, at this time, should mandate that
cable operators provide access by unaffiliated Internet service and
on-line service providers to the cable platform.

**I. Broadband: The Debate Over Access**

**A. The Debate Defined**

Broadband refers to technology that will allow users to access the
Internet and Internet-related services at speeds significantly higher
than traditional narrowband modems allow. Currently, many Americans who
use the Internet do so at speeds of less than 56kbps. Broadband
technology allows users to access the Internet at speeds that range from
fifty to several hundred times faster. This increased speed will provide
consumers with a range of enhanced services, including streaming video
and telephony services. Analysts predict that broadband technologies
will produce applications that will change the way consumers
communicate, shop, educate and entertain. By year's end, analysts
predict that approximately two million Americans will have access to
broadband technology. By 2008, that number is predicted to reach 78
million.[^2]

Cable operators have begun to offer broadband services to consumers in
various localities through cable modems. When a consumer signs up for
cable modem service, the cable operator will usually provide Internet
access through a wholly or partially owned or affiliated ISP. For
instance, a consumer who signs up for broadband cable services from AT&T
will receive Internet service from Excite@Home. A consumer who signs up
for broadband cable services from Time Warner will receive Internet
service from RoadRunner. When these cable modem subscriber accesses the
Internet through the cable line, the first Web page they will see
displayed is Excite@Home or RoadRunner, unless the subscriber
reconfigures his or her Internet access device to go through a different
ISP.

ISPs that are not affiliated with cable operators are attempting to
obtain direct access to cable broadband platforms that would enable
consumers to access the Internet directly through their service, thereby
bypassing the services of Excite@Home and RoadRunner. Currently, there
is no national regulation that would force cable operators to allow this
access. Local franchising authorities, who have the power to grant cable
franchises and approve the transfers of cable franchises in their
localities, have begun to require cable companies to "open up" or
provide "open access" to their broadband platforms for competing ISPs as
a condition for the approval of franchise transfers. Thus, as cable
company consolidation increases and as cable franchises come up for
renewal, this issue will become more pronounced.

At the same time, cable broadband rollout has spurred the deployment of
digital subscriber lines (DSL), the telephone platform for broadband
services. Currently, the number of DSL subscribers is significantly
behind the number of cable broadband subscribers. The rollout of DSL and
other broadband technologies, such as wireless, satellite, however, is
accelerating to close the gap.

Broadband access is among the most compelling issues in the
communications industry today. Important regulatory and legal decisions
affecting how Americans receive high speed Internet access, voice, video
and data services ---whether through cable modem, DSL, wireless, or
satellite---can affect the fates of many companies involved in the
development and deployment of broadband services. In addition, billions
of dollars in revenue and investment are at stake. As a growing number
of franchising authorities consider franchise license transfers and
legislative proposals to mandate access to the cable broadband platform
for competing ISPs, cable companies, telephone carriers and Internet
service providers will continue to lobby local governments to regulate
or refrain from regulating access to the systems providing broadband
services.

The Issue

It is in this environment that the debate over broadband access is
occurring. With enormous potential revenue streams and unique
opportunities at stake, the debate over broadband access has been
characterized by strong lobbying efforts and media strategies designed
to define the debate in terms of "open access" or, for those opposed to
regulation, "forced access." At the heart of the debate is how competing
Internet service and content companies will utilize the infrastructure
of broadband systems. The debate gives rise to a host of policy issues
for federal, state and local policymakers that revolves around one
central question: Would government intervention and regulation help or
hinder the deployment of broadband services for consumers?

The Parties

Proponents of mandated "open access" include:

-   Many, but not all, independent ISPs

-   Local telephone companies

-   Consumer advocacy groups, including the Media Access Project and the
    Consumer Federation of America

-   Some local governments, including the City of Portland and Broward
    County, Florida

Opponents of mandated "open access" include:

-   Some ISPs

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-   Cable operators and their affiliated ISPs

-   Consumer advocacy groups, including NetAction

Arguments For Mandated Open Access

Supporters of "open access" argue that a closed broadband network
threatens consumer choice and the open nature of the Internet.
Specifically, they posit that a broadband system without a policy of
nondiscriminatory access to any ISP that is willing to invest in the
network threatens the open nature of the Internet. They believe that
without access requirements, consumers will be faced with a choice
between broadband services and the freedom of movement and content that
characterizes the Internet. Open access supporters claim that this will
lead to less competition, higher prices, and less innovation.

Among the supporters of "open access" are coalitions of ISPs, led by
America Online (AOL), MindSpring Enterprises (MindSpring) and other ISP
companies. ISP advocates are concerned that the owners of a closed
networks will be able to exercise control over the content and
navigational services that the Internet offers. They also claim that
cable broadband is the only feasible option for the delivery of
broadband services at this point in time. Local telephone companies also
support an open access policy. Their arguments are based on regulatory
parity, which argues that since the phone companies are mandated to
provide open systems, the cable companies should be required to as well.

### **Arguments Against Mandated Open Access**

Opponents of mandated open access, led in part by cable interests, argue
that any regulation of the Internet will stifle deployment and
competition. Mergers and acquisitions have resulted in a consolidated
cable industry. With the acquisition of Telecommunications Inc. (TCI),
AT&T became the largest U.S. cable operator, followed by Time-Warner
Cable (Time-Warner), MediaOne, Cox Communications Inc. (Cox), and
Cablevision Systems Corporation (Cablevision). As technologies converge,
many of these operators are engaged in efforts to provide services not
traditionally offered by cable. Specifically, these operators are
attempting to enter the local telephone market in order to provide
telephony services over their cable systems. Additionally, many of these
operators are upgrading their networks in order to provide broadband
technologies to allow Internet access over cable systems.

These interests are largely opposed to a mandated access requirement.
They argue that the market in which they compete should guide their
corporate policy, not government regulation. One tangent of these
arguments relates to the costs that cable operators have incurred in
upgrading their systems. They argue that they should be allowed to reap
the benefits of these investments, and that supporters of an "open
access" policy should not be allowed to share market rewards they have
not earned. AT&T has also claimed that their system is not
technologically capable of supporting a large number of competing
Internet service providers.

**B. Roots of the Debate**

***The First 706 Report***

On January 28, 1999 the Commission adopted the first report to Congress
on the deployment of advanced telecommunications capability (Section 706
Report).[^3] The Commission based its findings on comments submitted by
interested parties, as well as research conducted by Commission staff.

In the report, the Commission concluded that, at present, the deployment
of advanced services capability in comparison to other technologies
appears to be proceeding in a timely and reasonable manner. The report
states that "deployment of broadband, both backbone and last mile, is
occurring on a major scale, for both business and consumer
markets.[^4][^5] The Commission's research demonstrated that "although
the consumer market is in the early stages of development, we see the
potential for this market to accommodate different technologies such as
DSL, cable modems, utility fiber to the home, satellite and terrestrial
radio.[^6] [^7]

Additionally, the report found that while the consumer broadband
industry is still in the development stage, multiple sources of
broadband technology are now, or soon will be available to Americans.
Thus, the report finds that there is "no reason to take action on this
issue at this time. \[The FCC\] will, however, continue to monitor
broadband deployment closely to see whether there are developments that
could affect our goal of encouraging deployment of broadband
capabilities pursuant to the requirements of Section 706.[^8] [^9]

###### 

###### *The AT&T/TCI Merger*

In June 1998, AT&T and TCI announced their plan to merge in 1999,
whereby TCI would become a wholly owned subsidiary of AT&T. AT&T/TCI
provided \@Home, a service that gives residential cable subscribers
high-speed access to the Internet. A number of parties in the merger
proceeding argued that, if approved, "AT&T-TCI (through \@Home) will
have a substantial head start in the provision of high-speed Internet
access and could develop an insurmountable position as a monopoly
provider (or duopoly provider together with LECs) of broadband Internet
access services to residential customers."[^10]

The Commission was not persuaded by this argument. While stating that
the issue of broadband access was not merger specific, the Commission
found that, although AT&T and TCI may be able to deploy these services
more quickly than competitors at the present time, other firms such as
telephone, satellite, electric utilities, and wireless providers were
working towards the same goal using different technologies. The
Commission found that the merger might expedite the goal of deployment
of high-speed Internet access services by allowing a quicker rollout of
these technologies. The Commission reiterated the position taken in the
Section 706 Report that there was no need for an "open access"
requirement at this time, but the Commission "will monitor broadband
deployment closely.[^11] [^12] After carefully weighing the arguments
offered by participants in the merger review process, the Commission
concluded that the proposed merger would not deny broadband subscribers
the ability to access the Internet content and portal of their choice.

###### *AT&T/TCI v. City of Portland*

Pursuant to TCI's cable franchise agreements with the City of Portland
and the County of Multnomah, any changes of TCI's corporate control
would have to be approved by the City and County. Thus, Portland and
Multnomah County began proceedings to review the franchise transfer
applications of AT&T and TCI. As required by law, TCI had to obtain
approval from the FCC in order to transfer its licenses to AT&T. Thus,
the FCC instituted a separate proceeding to determine whether the
transfer of the licenses from TCI to AT&T served the public interest,
convenience and necessity.

The Mt. Hood Regulatory Commission (Regulatory Commission), which
advised the City and County on the request for franchise transfer,
conducted a series of public hearings. In the course of those hearings,
ISPs not affiliated with \@Home claimed they could not compete with
\@Home's higher speed, low cost and widespread availability. The
Regulatory Commission concluded, and recommended to the City and County,
that \@Home had no viable competitors in the local market for
residential Internet access services and that AT&T's cable modem
platform was an "essential facility" that could not exclude competitors
without a legitimate business reason.

In December 1998, the City and County adopted the country's first
mandatory access provision in the wake of the AT&T/TCI merger. AT&T
rejected the mandatory access provision set forth by the City and County
ordinance, and in January 1999, the City and County stated that AT&T's
rejection resulted in a denial of its request for a change in control in
the TCI franchises. AT&T sued the City and County alleging that the
denial of the franchise transfer was unlawful. The principal issue was
whether the City of Portland had the power to require access to the
cable modem platform as a condition of approving TCI's franchise
transfer to AT&T.

On June 3, 1999, the District Court ruled in favor of the City of Oregon
and Multnomah County. AT&T appealed the decision to the Ninth Circuit
Court of Appeals under an expedited appeal schedule. Oral arguments are
scheduled for November 1999.

**C. Recent Developments**

In the wake of the Portland decision, local franchising authorities
(LFAs) from Florida to California were confronted with intensive
lobbying campaigns from proponents and opponents of mandated access
provisions. To date, four LFAs have voted on mandated access proposals,
with differing results: Portland, Oregon, Broward County, Florida, San
Francisco, California, and Fairfax City, Virginia.

#### *Broward County*

On July 13, 1999, the Broward County Board of County Commissioners voted
4 to 3 to adopt a general ordinance requiring cable operators under
Broward County's jurisdiction to provide unaffiliated ISPs
nondiscriminatory access to the cable companies' broadband facilities.
AT&T has appealed the decision. Cable operator Comcast Corporation
(Comcast) filed suit against Broward County on July 20 in federal court
challenging the authority of the county to impose new regulations.

# ***San Francisco***

The San Francisco Board of Supervisors reached a different result. On
July 26, the Board approved the transfer of control of TCI to AT&T
without mandating nondiscriminatory access. The Board did, however,
establish a city policy of supporting nondiscriminatory access to
broadband services, and directed the San Francisco City Attorney, the
Department and Telecommunications and Information Services, and the
Telecommunications Commission to take steps to implement that policy.
Among those steps are directives to monitor developments at state and
federal levels, and monitor market developments. The Board requested
that the San Francisco City Attorney, the Department of
Telecommunications and Information Services and the Telecommunications
Commission file a report on developments by December 15, 1999. The City
also filed a "friend of the court" brief in support of the Portland
ordinance with the United States Court of Appeals for the Ninth Circuit.

***City of Fairfax***

On September 28, 1999, the Fairfax City Council of Fairfax, Virginia
voted 4 to 2 to require Cox to provide access to its high speed Internet
platform to non-affiliated ISPs. The requirement was a condition of
approval of the transfer of the Media General Inc. franchise to Cox. Cox
is discussing the situation with city officials.

***Other Localities***

While only four localities have conducted votes on the issue, other
localities have seen an increase in broadband access activity. Numerous
localities are conducting studies and hearings on the issue. On January
26, 1999, the City Council of Los Angeles adopted a resolution
instructing its Information Technology Agency to develop a policy and
implementation plan for open, nondiscriminatory access to cable
architecture by Internet access providers. The Agency recommended that
the City of Los Angeles should not order cable companies to unbundle
content from access in the provision of cable modem services and that
the city should not order cable companies to open their cable modem
platforms to unaffiliated ISPs. Additionally, the Agency recommended
that the City continue to monitor the market for broadband access
services in the City over the next three years as the Agency enters into
renewal negotiations with cable operators in order to gauge the
necessity of imposing an open access provision in transfers or cable
television franchises.

A public workshop on the issue also was held in September in Dade
County, Florida. Additionally, proponents of mandated access have
started petition drives to place mandated broadband access initiatives
on the ballot in Colorado and Massachusetts.

#### *Congressional Action*

Thus far, Congress has not acted on the broadband issue. There are,
however, several bills pending in the U.S. House of Representatives and
in the U.S. Senate which address the cable access question. To date, no
action has been taken in the relevant committees on these legislative
proposals.

### **Federal Policy**

Pursuant to the requirements of Section 706 of the Telecommunications
Act of 1996[^13] (1996 Act), the FCC has studied the deployment of
broadband services and methods to promote the expeditious rollout of
advanced services. Based on these studies, the Commission has adopted a
policy of vigilant restraint, refraining from mandating "open access" at
this time, while closely monitoring for anticompetitive developments
that may require intervention. Additionally, the Commission is also
actively promoting the development of many broadband competitors - -
including wireless, satellite, cable, and telephone providers - - by
limiting regulatory burdens, by making more spectrum available, and by
making spectrum use more flexible. Competition from multiple broadband
providers is seen as the best way to prevent a monopoly by one provider.

######  

**II. TECHNICAL BACKGROUND**

Over the last two years, the term "broadband" has leapt from the pages
of obscure technical journals into popular American lexicon. The rapid
pace of technological achievement and the convergence of discrete
industries have moved broadband to the top of consumer and regulatory
agendas.

As more Americans access the Internet, they all want the same thing \--
more information at faster speeds. The access providers need broader
bandwidth capacity to meet this seemingly simple and basic demand and to
provide multimedia applications involving two-way data, voice and video.

The increasing demand for broadband services has been fostered by the
explosive growth of the Internet,[^14] which has risen from 10 million
users in 1995, to an estimated 150 million worldwide users in 1999.
Indeed, this growing medium offers unlimited possibilities and
multimedia applications to a worldwide network of online users.[^15]

As such, the Internet is much more than a network of networks; it links
people, communities, and nations together in ways previously unimagined.
The potential to provide education, health care, employment, and
training information, in addition to entertainment and data
transmission, establishes the Internet as one of the principal media for
societal transformation. Perhaps most significantly, the Internet has
produced the booming economic model we have come to call e-commerce,
which last year alone generated more than \$300 billion in revenue.

Transmitting data, voice and video services at high speeds has become
both a business and regulatory mandate, spurring an immense level of
investment.

As will be described more fully below, cable operators, telephone
companies, fixed wireless operators, and satellite providers, among
others, have deployed, or are planning to deploy, a wide array of
advanced services in response to, and in anticipation of, increasing
consumer demand.

**A. What is "Broadband?"**

The 1996 Act itself does not define the term "broadband." Instead, the
1996 Act refers to "broadband" as one of the characteristics of
"advanced telecommunications capability." "Advance telecommunications
capability" is defined as \"high-speed, switched, **broadband**
telecommunications capability that enables users to originate and
receive high-quality voice, data, graphics, and video telecommunications
using any technology.[^16] [^17] The term \"advanced telecommunications
capability\" is defined without regard to any specific transmission
media or technology.[^18]

Section 706 of the 1996 Act instructs the Commission to:

> *regularly ... initiate a notice of inquiry ...\[to\] determine
> whether advanced telecommunications capability is being deployed to
> all Americans in a reasonable and timely fashion. If the Commission\'s
> determination is negative, it shall take immediate action to
> accelerate deployment of such capability by removing barriers to
> infrastructure investment and by promoting competition in the
> telecommunications market*.[^19]

#### *As Defined in the Section 706 Report* 

In response to the congressional mandate, the Commission initiated its
first inquiry on the state of deployment of advanced telecommunications
capability, and earlier this year filed with Congress the Section 706
Report on the Commission's findings. In the Section 706 Report, the
Commission defines "broadband" as:

> *the capability of supporting, in both the provider-to-consumer
> (downstream) and the consumer-to-provider (upstream) directions, a
> speed (in technical terms, \"bandwidth\") in excess of 200 kilobits
> per second (kbps) in the last mile*[^20] [^21] *This rate is
> approximately four times faster than the Internet access received
> through a standard phone line at 56 kbps*. [^22]

The Commission chose 200 kbps because "it is enough to provide the most
popular forms of broadband \-- to change web pages as fast as one can
flip through the pages of a book and to transmit full-motion video.[^23]
[^24] Included in the definition are facilities that "have been upgraded
or otherwise altered in ways that make them capable of broadband speeds.
Thus, a non-broadband line, like a standard telephone line, that has
been conditioned so that it is capable of more than 200 kbps would
constitute broadband.[^25] [^26]

#### *The Definition of Broadband is Elastic and Does Not Include Content* 

The Section 706 Report also provides that: "broadband service does not
include content \[itself\], but consists only of making available a
communications path on which content may be transmitted and
received."[^27]

The Commission recognized that as technologies evolve, the concept of
broadband also would evolve. Thus, the Section 706 Report provides the
starting point for an elastic definition of "broadband."

> *We may consider today\'s \"broadband\" to be narrowband when
> tomorrow\'s technologies are deployed and consumer demand for higher
> bandwidth appears on a large scale.* [^28]

##### 

##### B. Cable Broadband[^29] 

#### *Changing Architecture*

Cable industry architecture is in the middle of a transformation from
closed cable systems that feature one-way delivery of analog television
signals to two-way, interactive broadband systems, involving a hybrid of
traditional coaxial and modern fiber optic technologies. These new
networks enable the cable industry to deliver a wide range of services,
including digital television, Internet access, and telephony[^30]

Historically, cable networks were constructed to provide only
traditional video programming services that required only one-way
transmission of signals. Until recently, the traditional one-way cable
system provided approximately 50 channels of analog video. The network
was a full coaxial system designed with a centralized "headend[^31][^32]
and lines called "trunks" leading from the headend to nodes placed in
the residential neighborhoods. Distribution lines emanated from these
nodes which carried the signals through the residential neighborhood. A
coaxial wire called a "drop" line then carried the service from the
distribution line to the customer's television set. The distribution and
drop lines represent the cable industry\'s \"last mile\" of plant into
the consumer\'s home. A traditional 350 MHz coaxial cable systems
included many amplifiers to boost the signal along the way to
subscribers' homes.

#### 

#### *Hybrid Fiber-Optic Coaxial Cable (HFC)*

Today, full coaxial systems are being replaced with hybrid systems
consisting of fiber-optic and coaxial lines. These cable networks are
also referred to as hybrid fiber-coaxial or "HFC." The HFC architecture
replaces the previous coaxial trunk with a fiber-optic "trunk." The
fiber terminates at the node, where the signal is then carried over an
upgraded high bandwidth coaxial cable to the customer premises. HFC
networks require fewer amplifiers and offer improved reliability,
increased capacity, and clearer signal transmission, all of which
facilitate two-way transmission.

#### *Increased Bandwidth, Cleaner Transmission*

The replacement of coaxial cable with fiber-optic cable increases the
system's capacity and reduces noise, providing cleaner transmission
paths that are necessary for two-way interactivity, telephony, and other
new services. The use of HFC enables cable operators to deliver
applications at very high data rates.

These new networks allow a cable operator to offer more than 100 analog
video channels, hundreds of digital video channels, as well as provide
capacity for Internet access, telephony and other services. With respect
to Internet access, upgraded cable systems can carry data up to several
100 times faster than transmission using dial-up modems over ordinary
telephone lines, and 100 times faster than ISDN (integrated services
digital network) telephone lines. Because a cable network is a shared
medium, these speeds vary depending on the number of actual subscribers
using the Internet connection at the same time. As an example, Table 1
compares the transfer rate for downloading a 10 Megabyte file. A 10
Megabyte file is approximately the equivalent of a 10 to 20 minute movie
clip. HFC cable architecture can transmit both upstream and downstream
packets of information. Cable companies thus can operate as \"pipeline\"
or \"conduit\" services, or become full-service providers combining both
Internet access and other value-added services.

#### TABLE 1: Transfer Rate For A 10-Megabyte File

+-----------------------------------------------+----------------------+
| **Modem Speed/ Type**                         | #                    |
|                                               |                      |
|                                               | # **Transfer Time**  |
+-----------------------------------------------+----------------------+
| 14.4-Kbps\* Telephone Modem                   | 1.5 hours            |
+-----------------------------------------------+----------------------+
| 28.8-Kbps Telephone Modem                     | 46 minutes           |
+-----------------------------------------------+----------------------+
| 56-Kbps Telephone Modem                       | 24 minutes           |
+-----------------------------------------------+----------------------+
| 128-Kbps ISDN Modem                           | 10 minutes           |
+-----------------------------------------------+----------------------+
| 1.54-Mbps T-1 Connection                      | 52 *seconds*         |
+-----------------------------------------------+----------------------+
| 4-Mbps Cable Modem                            | 20 *seconds*         |
+-----------------------------------------------+----------------------+
| 10-Mbps Cable Modem                           | 8 *seconds*          |
+-----------------------------------------------+----------------------+

> \*kbps (kilobits per second) & Mbps (Megabits per second)

Source: http://www.cablemodems.com/whatis.html

#### 

#### *Not Without Problems*

Despite the expanded capacity, technical problems for providing advanced
services over cable HFC networks remain. Return path transmission
interference results from noise generated at the connection points
between the trunk-distribution line connection and the distribution
line-drop connections. In addition, a cable network is a shared medium,
wherein subscribers in a particular area share capacity. As a result,
data transmissions are potentially more vulnerable to interference and
degradation caused by the actions of any individual subscriber\'s
equipment. Further, as previously mentioned, transmission speeds degrade
as more subscribers are online.

**C. Telephone Company Broadband\-- Digital Subscriber Lines
(xDSL)**[^33]

Digital Subscriber Line (DSL)---sometimes referred to as xDSL because of
the variety of DSL technologies and implementations---is the
telecommunications carriers' version of broadband access. DSL is quickly
emerging as an economic solution to provide high speed Internet access
to end users---both residential and small to midsized businesses. With
DSL, the average analog connection of 56.6 kbps can be upgraded to 1.5
Mbps or higher.[^34]

DSL technology upgrades the performance of the standard twisted pair
(the copper line connecting most homes and businesses) to carry high
capacity data transmission. The technology expands the amount of
frequency used over the copper line, whereby the line's higher
frequencies are used to transmit the data and the lower frequencies are
free to transmit voice or fax transmissions.[^35] Thus, DSL is able to
function on a line simultaneously with standard voice and fax services
and avoids the installation of a new separate line. Because the
technology works over the existing telephone plant, DSL is significantly
less expensive to deploy on a broad scale than other approaches, such as
new fiber or cable construction.[^36]

In addition, the cost structure of DSL enables providers to serve both
residential and business customers economically.[^37] Since phone lines
are nearly ubiquitous in the United States, DSL providers are not
limited to one market segment (*e.g.* business or residential) as are
some other broadband access providers.[^38]

Despite the promise of DSL to deliver broadband access to businesses and
consumers, there are several technical issues with regard to the
widespread implementation of DSL.[^39] One of the primary inhibitors is
signal attenuation, also known as the distance limitation. Attenuation
describes the dissipation of signal strength as it travels over the
copper line. DSL utilizes a higher frequency that is more susceptible to
attenuation than ordinary voice transmission.[^40] Consequently, the
various DSL technologies detailed below have distance limitations
ranging from 4,000 to 18,000 feet from the telephone company's central
office.[^41] "These limitations may ease as technologies improve, but as
a practical matter, DSL is currently limited to locations within a
three-mile maximum loop from the central office."[^42]

Although there are several versions of DSL service, there are two
general categories, symmetrical and asymmetrical (*see* Table 2).
Symmetrical versions offer the same data rates upstream and downstream
and are best suited for business applications such as
video-conferencing.[^43] Asymmetrical versions offer different data
rates upstream and downstream and are ideal for residential users who
receive a lot of data but do not originate or send much (*e.g*. Internet
surfers).[^44] One such version is called asymmetric digital subscriber
line (ADSL). As ADSL does not interfere with the basic voice service,
the user can simultaneously browse the Internet or watch a movie while
talking on the telephone.[^45] According to some reports, ADSL provides
a competitive advantage over cable modem Internet access in the
following areas:[^46]

-   Simultaneous fast Internet and voice/fax capabilities over a single
    telephone line.

-   Data security over a dedicated point-to-point line (from customer to
    local exchange carrier (LEC), which is not available over a shared
    medium such as HFC or cable modems.

-   Dedicated bandwidth that guarantees performance regardless of the
    number of users on the network. In the case of cable modems, where
    the bandwidth is shared, the actual performance deteriorates as the
    number of users on the network increases.

#### TABLE 2: DSL Technologies

+---------+------------------+------------+------------+-------------+
| **Ac    | **Full Name**    | **Maximum  |            | **Max.      |
| ronym** |                  | Data       |            | Distance    |
|         |                  | Rate**     |            | from        |
|         |                  |            |            | Central     |
|         |                  | **         |            | Office to   |
|         |                  | Downstream |            | End-User    |
|         |                  | Upstream** |            | (feet)\***  |
+---------+------------------+------------+------------+-------------+
| HDSL    | High-data-rate   | 1.5 Mbps   | 1.5 Mbps   | 12,000      |
|         | DSL              |            |            |             |
+---------+------------------+------------+------------+-------------+
| SDSL    | Symmetric DSL    | 768 kbps   | 768 kbps   | 10,000      |
+---------+------------------+------------+------------+-------------+
| VDSL    | Ver              | 51.8 Mbps  | 2.3 Mbps   | 4,000       |
|         | y-high-data-rate |            |            |             |
|         | DSL              |            |            |             |
+---------+------------------+------------+------------+-------------+
| RADSL   | Rate-adaptive    | 8 Mbps     | 1 Mbps     | 18,000      |
|         | DSL              |            |            |             |
+---------+------------------+------------+------------+-------------+
| ADSL    | Asymmetric DSL   | 1.5-8 Mbps | 640 kbps   | 18,000      |
+---------+------------------+------------+------------+-------------+
| G.Lite  | DSL Lite         | 1.5 Mbps   | 384 kbps   | 22-25,000   |
+---------+------------------+------------+------------+-------------+

Sources: Lehman Brothers; Ferris Baker Watts Research; Company reports.

\* For each DSL variant there are slower speed versions that allow
greater distances between central office and end-user.

**D. Wireless Technologies: Fixed Wireless and Satellite**

In the near to medium term, there will be various companies offering
local broadband access using a variety of wireless technologies: fixed
wireless and satellite. As with cable and telephone (collectively
wireline) companies, fixed wireless providers are using their existing
microwave networks to transmit high speed Internet services. Unlike
their wireline competitors, fixed wireless providers enjoy a few
competitive advantages. Because they avoid the high costs and delays
associated with laying fiber or upgrading cable networks, fixed wireless
companies can enter the market quickly and deliver broadband services at
relatively low costs.[^47] However, this technology also presents a
number of deployment challenges, most notably, the line-of-sight
requirements between the transmitter and receiving antenna.[^48] The
presence of obstacles, such as foliage, buildings, and even heavy rain,
can hinder reception.[^49]

In addition, broadband service via satellite has been projected for the
early part of the millennium.[^50] With their unlimited coverage area,
satellite systems will offer broadband access to virtually any part of
the United States and may be the best method for serving remote regions
and locations where telecommunications infrastructures are of low
quality or non-existent.[^51] There are several satellite providers that
are constructing systems and plan to start offering two-way broadband
satellite services[^52] by 2001.[^53] Despite the promise of these
broadband satellite systems, there are hurdles to deployment, including
time to market and technological complexity. Commercial availability of
satellite systems is at least two to three years away and, as a result,
satellites might lose potential customers to competing broadband
providers who currently offer high speed Internet access (*e.g.* cable
and DSL). In addition, the use of two-way satellite services for the
mass consumer market presents novel engineering and technology issues
that still need to be resolved.[^54] Once operational, however, these
satellite systems could directly compete against cable modem service,
DSL, and fixed wireless in the residential broadband industry.

**III. THE BROADBAND INDUSTRY**

**A. Generally**

As Internet usage continues its dramatic rise, the demand for broadband
services grows. The market demand to bring high-speed data, video and
voice to residential and business customers is reflected in increased
levels of investment and faster deployment schedules for various
technologies.

###### *Narrowband Still Dominant*

With the heightened focus on broadband technologies, the current state
of narrowband access often gets overlooked. Due to the ubiquity of the
switched telephone network system, the vast majority of residential
consumers continue to access the Internet through analog modems. In
January 1999, 65% of Internet users were still using analog dial-up
modems with an average speed of access of 33 kbps.[^55] It is projected
that dial-up will remain the principal means of accessing the Internet
for the near term. See Chart 1 at Appendix A.

####### B. Internet Over Cable[^56]

As indicated in the Commission's *Annual Assessment of the Status of
Competition in Markets for the Delivery of Video Programming*[^57]
access to the Internet over cable generally has become easier in the
past two years. Most cable operators do not require video subscription
as a condition of subscription for Internet-based services.

The most popular way to get online through cable infrastructure is
through the use of a personal computer and a cable modem.[^58] To
deliver data services over the cable network, cable operators using a
two-way broadband architecture typically allocate one television channel
for downstream traffic and one channel for upstream traffic. Cable
operators using a one-way broadband network typically allocate one
television channel for downstream, while the upstream path is provided
over a telephone line. At the cable headend, a cable modem termination
system (CMTS) communicates through the allotted channels with cable
modems located in subscriber homes to create a virtual local area
network (LAN)[^59] connection.

However, to provide Internet access over cable, operators must do more
than just install cable modems at the customer premises and CMTSs at the
headend. They have chosen to build an entire end-to-end Internet
Protocol (IP) networking infrastructure in each community.[^60] This
includes Internet backbone connectivity, routers, servers, and network
management tools, as well as security and billing systems. Essentially,
cable operators have constructed sophisticated, community-wide
end-to-end \"intranets.\"[^61]

Connecting to the Internet over cable infrastructure can offer
significant advantages in terms of speed-of-connection as compared with
transmission over traditional dial-up telephone access and other
technologies. Broadband networks maintain higher capacities than
standard telephone lines, and thus allow for faster data-transmission
speeds. But since a network connection is only as fast as its slowest
link, the benefit of high-speed cable connection is lost for content
hosted on a Web server that is connected to the Internet though a
56-Kbps line. The solution is to bring popular content closer to the
subscriber. This is done by \"caching\" or storing copies of popular
content on local servers, installed usually at regional distribution
centers or hubs.[^62] Thus, when cable modem subscribers access certain
websites, their requests will be routed to the local server instead of
through the public Internet.

In addition to advantages of speed, Internet over cable also offers end
users a connection that is "always on," as compared with the more
widely-used dial-up services.[^63] Furthermore, most Internet over cable
providers offer proprietary content. These ISPs are also known as online
service providers or OSPs.

Virtually all of the major cable operators offer broadband access in
some areas, and they are steadily expanding service areas to meet
demand[^64][^65] Currently, however, service is not available in all
markets. Notably, cable broadband access will continue to become more
widely available as cable system infrastructures are upgraded. In
markets where cable broadband is available, the industry is hopeful that
the eventual standardization of cable modems will increase subscription
levels. To that end, an industry consortium called CableLabs has adopted
hardware and software interface standards called Data Over Cable Service
Interface Specification System (DOCSIS) to support the delivery of data
services over the cable infrastructure.[^66] This standard should
contribute to lower-cost modems, less complex and time consuming
installation procedures, and potentially, self-installation by
subscribers.[^67] As DOCSIS compliant modems become available at retail
outlets, sales of cable modems should dramatically increase.

The cable operators are also partnering with a number of cable ISPs that
provide comprehensive networking and systems integration services to
support broadband access. For example, Excite@Home and RoadRunner offer
their own high-speed data backbone and regional data centers with local
caching equipment. Other companies, such as High Speed Access
Corporation (HSA) and ISP Channel, are offering basic turnkey Internet
packages specifically designed for small cable system operators.

###### *Cable Modem Deployment: Over 1 Million Subscribers*

Following are notable measurements of the current cable modem market:

-   As of August 1, 1999, cable modem service was available to 32
    million homes. This was equal to 30 % of all cable homes passed in
    the U.S. and Canada.[^68]

-   The penetration rates for cable modem service averages 3.5 %, as
    cable operators in North America finished the second quarter of 1999
    with 1,052,000 cable modem subscribers (see Table 3). [^69]

-   More than 90 % of these subscribers are on two-way cable systems,
    while 10 % are on one-way systems.[^70]

-   This is a dramatic increase from 1998, where 15 million homes were
    passed, and there were approximately 300,000 cable modem service
    subscribers[^71][^72]

-   North American cable companies are currently adding more than 2,500
    cable modem subscribers per day.[^73]

-   At that growth-rate, total subscriber count could surpass 1.5
    million by the end of 1999.

-   The two leading providers of Internet over cable are Excite@Home and
    RoadRunner. Both are OSPs, offering proprietary content as well as
    access to the Internet.[^74]

-   As of August 1, 1999, the Excite@Home subscriber count was estimated
    at 670,000.[^75] RoadRunner's subscriber count was estimated to be
    350,000.[^76]

-   A number of new cable ISPs, such as HSA, Prolog, and ISP Channel,
    have partnered with cable operators to offer their versions of high
    speed Internet access.[^77]

-   High-speed Internet access deployment also has extended to rural and
    small communities, where the costs of deployment and operation are
    high.[^78] To successfully deploy broadband in such areas, cable
    operators serving these communities have established partnerships
    with businesses offering various Internet services.[^79]

####  TABLE 3: Cable Modem Customer Rankings June 30, 1999

+---------------------------------------------+---------------------+---+
| ### **Cable Operator**                      | ## Cabl             |   |
|                                             | e Modem Subscribers |   |
+---------------------------------------------+---------------------+---+
| Time Warner Cable                           | 186,000             |   |
+---------------------------------------------+---------------------+---+
| Media One                                   | 140,000             |   |
+---------------------------------------------+---------------------+---+
| Cox Communications                          | 112,000             |   |
+---------------------------------------------+---------------------+---+
| Comcast                                     | 95,000              |   |
+---------------------------------------------+---------------------+---+
| AT&T                                        | 83,000              |   |
+---------------------------------------------+---------------------+---+
| Shaw Communications (*Canada*)              | 120,000             |   |
+---------------------------------------------+---------------------+---+
| Rogers Cablesystems (*Canada*)              | 100,500             |   |
+---------------------------------------------+---------------------+---+
| Other                                       | 215,000             |   |
+---------------------------------------------+---------------------+---+
| **TOTAL**                                   | **1,052,000**       |   |
+---------------------------------------------+---------------------+---+

Source: Kinetic Strategies, Company Reports

####### 

####### *Industry Projections for Cable Modem Deployment and Plant Upgrades*

-   Cable modem deployment is expected to dramatically increase in the
    coming years. The projections for residential cable modem
    subscribers range from 4 to 6 million by 2002, and over 11 million
    by 2005.[^80]

-   The development of the DOCSIS standards for high-speed data delivery
    over cable will directly accelerate cable modem deployment, because
    DOCSIS compliant modems will increase the success of retail
    distribution channels, as well as simplify the installation
    process.[^81]

-   Cable operators have adopted an aggressive schedule to upgrade their
    networks to provide broadband services.[^82]

-   Under the current schedules, by year-end 1999, the largest cable
    operators (AT&T, Time Warner, Cablevision, Cox, Comcast)
    collectively will have upgraded systems that cover 46.7 million
    (65%) of the 72.4 million homes passed.[^83] By year-end 2000, these
    companies will have upgraded systems that cover at least 61 million
    (80%) households.

-   According to Excite@Home, in order to provide broadband services,
    the cable industry will need to spend \$15 billion to upgrade their
    systems to reach roughly one half of homes-passed in the United
    States and \$31 billion to upgrade their systems to reach all homes
    passed.[^84]

**C. DSL Deployment**

Various telecommunications providers, from incumbent local exchange
carriers (ILECs) to competitive local exchange carriers (CLECs),
recently have adopted aggressive deployment schedules for DSL. There
were approximately 160,000 DSL lines in service at the end of the second
quarter 1999.[^85] This represents a 300% increase since the fourth
quarter 1998 and a 100% increase since the first quarter 1999.[^86]

The ILECs' aggressive deployment of DSL can be attributed in large part
to the deployment of cable modem service. Although the ILECs have
possessed DSL technology since the late 1980s, they did not offer the
service, for concern that it would negatively impact their other lines
of businesses. [^87] The deployment of cable modem service, however,
spurred the ILECs to offer DSL or risk losing potential subscribers to
cable. In various communities where cable modem service becomes
available, the ILECs would soon deploy DSL service that was comparable
in price and performance to the cable modem offering. [^88] Thus, prior
to cable modem deployment, the ILECs had little incentive to deploy DSL
and the consumer had no choice for high-speed Internet access.

At present, cable modem service has a considerable lead over DSL in
terms of total number of subscribers in the residential market. We
anticipate DSL will close this lead, with the adoption of new
technologies and standards that will improve the performance of DSL. By
2007, the subscriber levels for DSL should be nearly comparable to
cable.[^89] See Chart 2 at Appendix B.

In addition to the ILECs, a new type of CLECs has begun to focus on the
high-speed Internet market. Covad Communications Company (Covad),
Rhythms NetConnections Inc. (Rhythms NetConnections), and NorthPoint
Communications Inc. (Northpoint) all have raised billions of dollars in
their initial public offerings. These companies intend to target DSL
services to small and mid-sized businesses, as well as to residential
customers.[^90]

The adoption of DSL-lite (or G.lite) should further accelerate the pace
of broadband deployment in the residential market, because it increases
the coverage area of DSL [^91] beyond 18,000 feet from the central
office and allows more homes to receive high speed Internet access over
their existing copper lines. In addition, G.lite can be installed
(plug-and-play) by the customer.[^92] This plug-and-play feature is an
important competitive factor, because it allows for off-the-shelf retail
availability and modem pre-installation in PCs, two goals the cable
industry hopes to achieve with its DOCSIS cable modem standard.[^93] The
plug-and-play feature also lowers labor costs, since it reduces the time
technicians spend installing the service at the home or business.

####### *Industry Projections & Announcements for DSL*

-   Actual number of DSL subscribers grew to 159,150 by the end of
    second quarter 1999, more than tripling since the fourth quarter
    1998 and more than doubling since the first quarter 1999.[^94]

-   Analysts predict that over 30 million telephone lines will be
    qualified to support DSL services by the end of 1999.[^95] (See
    Table 3).

-   Bell Atlantic plans to double the availability of its DSL product to
    17 million telephone lines by year-end 1999.[^96]

-   SBC Communications Inc. (SBC) expects to reach 250,000 DSL
    subscribers and to increase DSL availability to over 10 million
    homes by year-end 1999.[^97]

-   US West expects to reach 100,000 DSL subscribers by year-end
    1999.[^98]

-   GTE announced a new discounted DSL pricing structure, offering its
    own ISP (GTE.net) for \$49.95/ month.[^99]

-   US West lowers its price on selected DSL offerings to \$37.90/
    month. This special DSL offering will soon be available in more than
    40 cities across US West's region.[^100]

-   ILECs have entered co-marketing and co-branding agreements with
    established Internet access companies such as AOL, MindSpring and
    EarthLink.

-   Bell Atlantic and SBC have agreed to provide volume-discounted DSL
    transport service to AOL in order to tap its 19 million-customer
    base and brand name.[^101]

-   BellSouth recently reached a similar agreement with MindSpring,
    which has a 1.2 million customer base.[^102] EarthLink has
    agreements with GTE and Sprint to offer DSL services
    nationwide.[^103] MindSpring and EarthLink have announced plans to
    merge. The combined entity will have a subscriber base over 3
    million.[^104]

-   NorthPoint, a wholesale provider of broadband, last-mile DSL
    connections, states that it has collocation space to serve 30
    million residential lines and 4 million business lines.

-   Rhythms NetConnections has partnered with VillageNet Inc., a
    community oriented Internet Service Provider, to currently offer DSL
    services to New York and Los Angeles and, by year-end 1999, plans to
    offer these services nationwide.[^105]

-   Covad is creating a broad network footprint and plans to deploy DSL
    services in 51 major markets, which will cover 28 million homes and
    small businesses by the end of 1999.[^106]

#### TABLE 3: Percentage of ILEC Networks That Are DSL-Ready 

+-----------------------+-------------------+--------------------------+
|                       | > **Qualified     |                          |
|                       | > Lines (mil)**   |                          |
+-----------------------+-------------------+--------------------------+
| # **RBOCs**           | > **1998**        | > **1999**               |
+-----------------------+-------------------+--------------------------+
| > Ameritech           | > n/a             | > n/a                    |
+-----------------------+-------------------+--------------------------+
| > Bell Atlantic       | > 2.0             | > 7.0                    |
+-----------------------+-------------------+--------------------------+
| > Bell South          | > 2.0             | > 4.0                    |
+-----------------------+-------------------+--------------------------+
| > SBC                 | > 3.3             | > 10.0                   |
+-----------------------+-------------------+--------------------------+
| > US West             | > 3.6             | > 5.2                    |
+-----------------------+-------------------+--------------------------+
| > GTE                 | > 5.0             | > 6.0                    |
+-----------------------+-------------------+--------------------------+
| > **Total:**          | > **15.9**        | > **32.2**               |
+-----------------------+-------------------+--------------------------+

Source: Donaldson Lufkin & Jenrette\--Wireline Communications (June
1999)

**D. Wireless Technologies: Fixed Wireless & Satellite**

Within a few years, there will be several fixed wireless companies that
will be offering broadband access.[^107] At present, Teligent, Inc.
(Teligent) and WinStar Communications, Inc. (WinStar) offer a variety of
broadband services to small and medium-sized businesses in several
metropolitan markets. Both companies have plans to further rollout their
services to several new markets throughout the U.S. and have negotiated
service contracts with numerous Real Estate Investment Trusts (REITs) to
serve large apartment and commercial complexes.[^108]

In the upcoming months, there are several new fixed wireless systems
offering broadband access through either Local Multipoint Distribution
Service (LMDS) or Multichannel Multipoint Distribution Services (MMDS)
technologies. Nextlink Communications (Nextlink) is the largest holder
of LMDS spectrum in North America, with licenses covering 95% of the
population in the top 30 markets in the United States.[^109] Nextlink
intends to use its wireless capabilities to extend the reach of the
company's local fiber optic networks to soon offer an array of broadband
services.[^110] In addition, MMDS systems are being reconfigured to
provide two-way high-speed Internet services. Previously, MMDS companies
provided one-way video services. As market conditions have changed and
the demand for data services has increased, the Commission changed its
rules last year to allow MMDS companies to offer two-way broadband
services.[^111] In recent months, MCIWorldCom and Sprint Communications
Company, L.P. (Sprint) have taken advantage of this rule change and have
spent collectively over \$1 billion to purchase several MMDS systems and
plan to use these systems to offer broadband services directly to
business and residential customers.[^112] MMDS systems complement these
long-distance carriers' (IXC) networks, for they provide the last-mile
connection to businesses and residences. Once the networks of MMDS and
IXCs become fully integrated, the IXCs will have greater control of the
end-to-end transmission and will be able to provide broadband services
to subscribers more efficiently.

Two satellite systems with great potential for delivering local
broadband access are Spaceway and Teledesic. Spaceway utilizes 16
satellites to provide "bandwidth-on-demand"--- the ability to transit
and receive voice, video, and data at any time from any place --- at
speeds up to 6 Mbps.[^113] The Spaceway system is expected to cost \$4.3
billion to build and launch and should be operational in 2002.[^114]
Teledesic plans to utilize 288 satellites in low earth orbit (LEO) to
provide two-way digital transmission---voice, video, and data --- at a
low cost, regardless of location.[^115] Its system will provide 24-hour
seamless coverage to over 90% of the planet's surface and nearly 100% of
the Earth's population.[^116] The company expects to start service by
2002-2003.[^117]

**IV. PRELIMINARY FINDINGS**

# 

**A. The Cable Services Bureau's Monitoring Sessions**

At the request of the Chairman, the Cable Services Bureau convened a
series of Monitoring Sessions in May and July to study the state of the
broadband industry and to identify any potential market failures. The
purpose of these meetings was to:

-   Ascertain a better understanding of the broadband industry since the
    submission of the Section 706 Report to Congress.

-   Answer the question: "Should the government require cable companies
    to provide access to their cable plant by unaffiliated on-line
    service providers and Internet service providers?"

This seemingly simple question raised several complex policy, legal, and
economic issues. In order to address these issues, the Commission staff
met with a diverse group of representatives from cable,
telecommunications, Internet industries, public interest groups,
investment analysts and academics. The Monitoring Sessions held thus far
were devoted to policy and investment. The Bureau anticipates convening
future Monitoring Sessions on the topics of e-commerce, technology, and
other relevant issues.

**B. Participants**

Meeting participants were chosen based on their interest, expertise, or
experience in the range of issues related to broadband deployment and
technology. By category, these participants included the following:

Multiple System Operators (MSOs)[^118]

Local Franchising Authorities (LFAs)[^119]

Local Exchange Carriers (LECs)[^120]

Competitive LECs (CLECs)[^121]

Inter-Exchange Carriers (IXCs)[^122]

Internet Service Providers (ISPs)[^123]

On-line Service Providers (OSPs)[^124]

Industry Trade Groups[^125]

Public Interest Groups[^126]

Educational Institutions, Think Tanks, Research Organizations, Academics

Investment Analysts[^127]

**C. Questions Posed to Panelists**

The Bureau staff submitted to our panelists a number of written
questions concerning the current and future state of the broadband
industry. The actual questions submitted to the panelists are reproduced
in Appendix C. The questions were designed to facilitate discussion with
the panelists on key policy and economic issues pertaining to the
broadband industry. Panelists were encouraged to discuss their
perspectives on current conditions in the broadband industry, and
express an opinion on whether regulation was warranted by these
conditions. Factors such as future market developments, technological
advances, and ancillary benefits and harms were also offered for
consideration. Additionally, panelists were encouraged to discuss the
potential benefits and harms that regulation may present.

**D.** **Responses and Preliminary Findings**

In this part of the Report, we summarize the positions of the panelists
and set forth our very preliminary findings that flow from these
positions. We do not attempt to give an exhaustive recitation of the
views of the panelists. Rather, we are attempting to convey the major
positions articulated by the panelists and distill preliminary findings
that can further inform the Commission's policies on broadband.

1.  **The broadband industry is nascent.**

As detailed in Part III of this Report, there are approximately 40
million residential Internet subscribers in North America, approximately
one million of whom subscribe to broadband Internet services. It is
important to remember that residential broadband Internet subscribers
constitute less than 3% of the total Internet subscribers in North
America. Although the Bureau expresses no view on whether the
residential broadband market is a separate market from the residential
narrowband market, a comparison of the numbers between the two is
instructive to appreciate the relatively small scale of residential
broadband deployment. Even the most optimistic estimates predict that
narrowband will still be the dominant subscribed form of Internet access
by 2005. One analyst predicted that by 2005, cable will have 34% (23
million subscribers) of the Internet access market, with DSL at 15% (10
million subscribers), and dial-up narrowband at 51%, or 35.7 million
households.

There was wide agreement that cable has an early lead in deployment of
broadband services. Of the total number of residential broadband
subscribers [today]{.underline}, nearly 90% subscribe to cable modem
service. There were, however, divergent views on whether cable would
continue to dominate the residential broadband industry, as well as
which technologies would be serious competitors in that market.

***Broadband industry will thrive in absence of regulation***

Most analysts stated that competition, while still in its infancy,
exists in the broadband industry and is likely to increase in the
absence of government intervention. One analyst predicted that by 2005,
there would be approximately 23 million cable broadband subscribers, 10
million DSL subscribers, and 1 million satellite broadband subscribers.
Analysts also forecasted that DSL penetration could rise to 20% of
high-speed data users by 2005 and to 40% by 2006.

Most participants believed that continual monitoring of the market is
appropriate and necessary to determine the effect of the Commission's
current policy of regulatory restraint on other markets such as
e-commerce and e-content.

2.  **Cable modem deployment spurs alternative broadband technologies.**

There was little disagreement among the panelists that cable investment
inherently spurs investment in DSL and vice versa. Some participants
noted that in the very near term, consumer choices in residential
broadband likely would be limited to either DSL or cable modems. Most
agreed that there would not be multiple pipes into the home within the
next two to five years. Rather, cable and DSL platforms were expected to
dominate, with satellites providing an alternative. Given the high
levels of investment in non-cable, two-way broadband technologies such
as DSL, satellite, MMDS, and electric utilities, there was wide
agreement that robust competition in the broadband industry in the long
run is likely.

3.  **Regulation or the threat of regulation ultimately slows deployment
    of broadband.**

Cable interests argued that they have made an enormous investment in the
cable plant and have taken on extraordinary amount of risk to create a
facilities-based competitor to the local phone market. This investment
and risk, according to the cable interests, should not be jeopardized by
saddling cable with government regulation. Cable interests also argued
that the threat of regulation jeopardizes the incentives to make
investments in alternative broadband technologies.

The investment analysts were in wide agreement that market competition
is developing in the absence of government intervention. They further
agreed that the Commission's current policy of monitoring and restraint
facilitates development of a fertile marketplace. The absence of
regulation, according to an analyst and an industry scholar, has been
one of the principal factors contributing to the growth of cable modem
deployment in the United States. The investment analysts also agreed
that consumers would best be served if the broadband industry segments
continue to pursue market-based solutions that will speed the deployment
of broadband.

In this same vein, there was near unanimous agreement among the cable
and investment panelists that government regulation of the terms and
conditions of third-party access to cable systems would cast a cloud
over investment in both cable and telephony applications.[^128]
According to these panelists, the cable industry\'s ability to provide
high-speed data services and telephony already is factored into cable
company valuations. Government-mandated access, as one cable ISP
official noted, "puts a shotgun slug through two inches of Excel
spreadsheets that \[cable companies\] use to generate their
rate-of-return calculations."[^129] Although warning against the
prospect of slowed deployment of advanced services resulting from
mandated access, some of the analysts found that current commitments for
broadband and the momentum of AT&T's deployment might limit the negative
impact of any "open access" regulation.

The cable operators warned that even "light touch" regulation would be a
substantial distraction to investment in cable and the rollout of
services. The complexities of the Commission\'s rule making and
tariffing processes also would have the same affect. Additionally, the
cable operators stated that a slow-down or halt in cable telephony
investment could result from government intervention into "open access."

One participant noted that not only does the threat of regulation affect
cable modem deployment, but any disincentives that apply to cable are
also applicable to telephone company DSL. Analysts pointed out that
mandating "open access" to broadband platforms could have an extremely
detrimental effect not only on cable stock valuations, but on other
industries as well. If investment in cable systems slows, stock prices
could fall and affect build-out capital. This in turn could slow the
rollout of DSL by ILECs, as the urgency to beat cable to the consumer
marketplace would diminish. There likely would be a ripple effect. Such
a slow down, according to the analysts, could dramatically slow the
development of Internet advertising, e-commerce, and content.

4.  **Market forces will compel cable companies to negotiate access
    agreements with unaffiliated ISPs, preventing cable companies from
    keeping systems closed and proprietary.**

There was virtually unanimous support for the proposition that closed
proprietary systems generally fail and do not adequately serve the needs
of consumers. The panelists' opinions diverged over whether market
forces, if left to their own devices, will create an open and fluid
model or whether government intervention is the only way to achieve this
model.

The investment analysts were extremely confident that ISPs like AOL
would almost certainly strike a deal with AT&T and other cable
operators. These panelists posited that AOL's over 18 million subscriber
base gives AOL and the cable operators a mutual interest in allying to
increase cable's market penetration, protect their video and phone
businesses, and eliminate competition. Notwithstanding the existence of
the exclusive ISP arrangement AT&T has with Excite@Home, the analysts
believed that AT&T and AOL were in the process of negotiating a carriage
arrangement. The analysts were less confident, however, of the prospects
of AT&T striking a deal with other unaffiliated ISPs in the near term.
The prospect of imminent government mandated access, according to the
analysts, would skew these negotiations.

5.  **If market forces fail and cable becomes the dominant means of
    Internet access, regulation might then be necessary to promote
    competition.**

Some of our panelists warned that the principal harm of government
restraint would be the development of a closed proprietary system that
is the only viable broadband platform to the Internet. Such a system
would restrict the ability of consumers to access the Internet through
the ISP of their choice and stifle innovation brought about by small and
independent ISPs. According to some LECs, ISPs, and public interest
groups, cable companies could become Internet gatekeepers with the power
to determine which ISPs consumers could use and what content they could
access. These panelists took the view that a "leopard does not change
its spots."[^130] Cable is a monopoly and will extend its monopolistic
behavior into the residential broadband industry, they contended. The
Commission's failure to stop the formation of a broadband monopoly,
according to these panelists, will render subsequent remedial action
useless.

According to this view, cable operators would be able to limit
consumers' choice to their affiliated ISPs, thereby freezing out
unaffiliated ISPs. Although the larger independent ISPs like AOL and
MindSpring may survive, some "open access" advocates warned that the
development of a closed proprietary system would limit the innovation
that smaller, unaffiliated ISPs can offer consumers. Panelists
representing smaller ISPs warned that the government's failure to
mandate "open access" will lead to the demise of thousands of smaller
ISPs who will not have the bargaining power of the larger independent
ISPs.

One investment analyst also warned that cable's current broadband model
will have much broader implications on the development of e-commerce and
content sites. By controlling the last-mile and vertically integrating
its Internet access and content, cable operators have the ability to
discriminate against unaffiliated e-commerce and content providers. This
analyst further argued that cable will have the incentive to
discriminate against these unaffiliated providers, considering the
potential revenue from e-commerce and advertising related to e-content.

Panelists also argued that government inaction might enable cable
operators to prevent Internet video services from developing. These
participants stated that cable operators will be able to use their
gatekeeper function to restrict Internet video streaming over cable
broadband networks. Specifically, LEC and local government interests
argued that cable operators will be able to control content on the cable
system network by restricting Internet video streaming.

6.  **There was no consensus on how to implement \"open access\" from a
    regulatory perspective.**

####### *"Why doesn't the Commission adopt a broadband regulatory model* 

####### *comparable to existing models in the Communications Act?"*

ISPs and some public interest groups posited that "open access" requires
cable operators to grant unaffiliated ISPs non-discriminatory access to
their cable plant. This would mean imposing an "open access" requirement
similar to the common carrier regime under Title II of the
Communications Act. These groups argued that broadband service over
cable lines is essentially common carriage, and moving bits between an
ISP and a consumer is essentially a transmission service.

Some of these same interests suggested that "open access" also can be
defined by reference to the cable communications provisions of Title VI
of the Communications Act, which are designed to protect against the
potential abuses of cable operators selling programming. These interests
stated that Title VI-type regulation (also referred to as "regulation
light") would provide unaffiliated ISPs the same access to the cable
system as ISPs affiliated with the cable system. It was suggested that
the Commission could simply apply its leased access rules[^131] or its
program access, just as it would in the context of a vertically
integrated company who owns both the facilities and the programming
carried on the system. One of the advantages cited by these proponents
is that tier buy-through restrictions would prevent cable operators from
requiring that a subscriber purchase its affiliated Internet access
service as a condition of subscribing to cable video service.
"Regulation light," according to its advocates, would also avoid the
full-blown burdens of Title II-type regulation.

One Internet backbone provider suggested that if the Commission does not
choose to apply Title II or Title VI-type definition of "open access,"
it should consider applying a public interest analysis to define the
terms of "open access." This means that the Commission would rely on its
ancillary powers under section 4(i) of the Communications Act to perform
"any and all acts, make such rules and regulations, and issue such
orders, not inconsistent with \[the Act\], as may be necessary in the
execution of its functions."[^132] Advocates of this position, however,
did not provide any substantive description of how these "open access"
rules would look or operate.

Other "open access" advocates offered what they believe to be a less
complex definition of "open access." One academician suggested that the
Commission simply impose a basic unbundling requirement, which would
permit consumers to purchase only the services they desired, such as
high-speed Internet access, video programming, or telephony \--
separately or in combination. Under such an "open access" regime, cable
companies would be free to establish a price for access and charge the
same price to all ISPs.

####### *"Why doesn't the Commission level the playing field for* 

####### *telecommunications service providers and cable operators?"*

At least one LEC panelist, an academic, and some public interest groups
supported an "open access" regulatory scheme across facilities. Under
such an approach, the Commission would impose the same regulatory
obligations upon cable operators as those imposed on ILECs. On the other
hand, if the Commission refrains from imposing access requirements on
cable operators, these panelists argued that the Commission should
relieve incumbent LECs of their access requirements.[^133] If broadband
cable regulation does occur, these panelists argued for
non-discriminatory access and arms length dealing for backbone traffic.
The panelists expressed concern that a vertically integrated transport
and content provider could lead to higher backbone prices.

####### *"Why doesn't the Commission just follow* 

####### *the Canadian regulatory model for 'open access'?"*

A technology forecasting group acknowledged that the term "open access"
is elusive because the industry is still evolving, but suggested, among
other things, that the Commission examine the Canadian experience with
"open access" for guidance in enacting a regulatory scheme. In 1996, the
Canadian Radio-Television and Telecommunications Commission ("CRTC")
required incumbent cable operators to provide non-discriminatory access
to the cable platform by unaffiliated ISPs.[^134]

***"The cable platform is already an 'open' system"***

Some cable operators argued that cable systems are, in fact, already
open, and there is no need for imposing further requirements. This view
posited that cable Internet subscribers can reach any Internet site or
portal over the cable platform, and are free to select the ISP of their
choice by simply "clicking-through."[^135] "Open access" means providing
access to unaffiliated ISPs on mutually acceptable terms, determined by
arms-length negotiation. This view of "open access," however, did not
enjoy support much beyond the cable interests in attendance.

***Unanswered Questions***

"Open access" is one of the most well-worn terms in the growing
broadband access debate. Private interest groups recently have emerged
advocating for and against "open access."[^136] Four LFAs recently
mandated that cable companies provide non-discriminatory access to
unaffiliated ISPs as a condition of approving franchise transfers.[^137]
Legislation on the subject has been introduced in State legislatures and
the U.S. Congress.[^138] Yet, despite a flurry of national and grass
roots activity concerning "open access," our panelists \-- a collection
of some of the nation's leading business, government, and public
interest advocates on this issue \-- were not able to agree upon a
single workable definition of the term,[^139] much less recommend an
appropriate regulatory classification and enforcement mechanism. This
fact speaks volumes about the difficulties and appropriateness of
establishing a regulatory regime at this early stage in broadband's
history.

To date, many questions concerning the specifics of implementing a
broadband access requirement remain unanswered. None of the enacted
local legislation requiring access has set forth a defined system of
interconnection or guidelines for pricing.[^140] And most of the enacted
or proposed legislation simply mandates that the terms, rates, and
conditions of "open access" shall be the same as those the cable
operator provides to itself or affiliated ISPs. This "nondiscrimination"
standard offers little guidance when a cable operator does not itself
offer Internet access service or is not affiliated with an ISP.

Further, even as to cable operators providing Internet access service
through an affiliated ISP, a "nondiscrimination" standard leaves many
implementation questions unanswered. For example, as cable operators
have pointed out, affiliation agreements between cable companies and
ISPs have involved the cable operator taking an equity stake in (and
revenue split with) the affiliated ISP. Whether these arrangements can
and should be used as the basis for a carriage arrangement with
unaffiliated ISPs is difficult, at best. Significantly, implementation
of the "nondiscrimination" standard for interconnection and access to
ILECs' telephone networks under Title II of the Communications Act
necessitated the creation of separate, complex sets of accounting and
non-accounting rules to govern pricing arrangements between ILECs and
CLECs.[^141]

Finally, the panelists were vague or declined to offer to explain how
imposing a broadband access requirement would be consistent with the
de-regulatory goals of the 1996 Act.

7.  **There was no consensus on how to implement \"open access\" from a
    technical perspective.**

There seemed to be wide agreement among the panelists that "open access"
means a common infrastructure that is competitively neutral. Some
consider this to mean choice and competition at every level of Internet
access: the backbone level, the ISP level, and the content level. In
other words, choice in broadband should be the same as in narrowband.

What was particularly confounding for our participants was the question
of where "open access" should occur. One industry analyst said that
"open access" is decoupling transport from the rest of the Internet, so
that cable does not become the "choke" point. Local government
representatives proposed that a local peering arrangement[^142] should
be made throughout a local high-speed meeting point.

One participant argued that it is the protocol of the Internet that is
important, and that the Commission should maintain a protocol
independent of the network over which it runs, though no standard was
offered.

Aside from the technical obstacle of implementation, some of the
analysts noted that one of the greatest logistical obstacles to the
deployment of distribution systems is the shortage of engineers and the
limited infrastructure necessary to physically create and deploy these
systems. It was clear that at the time of the Monitoring Sessions, none
of the participants had a definitive idea as to how to account for the
critical logistical requirements for wide-scale cable broadband
deployment.

8.  **Rapid nationwide broadband deployment depends on a national
    policy.**

There seemed to be wide agreement among our panelists that consumers
would be poorly served by a fractured broadband landscape wherein each
locality devises its own set of cable Internet access regulations. All
of the financial analysts expressed concern over the prospect of
hundreds of LFAs regulating broadband access. The analysts also were
concerned that the nascent broadband industry could be negatively
impacted if the Portland decision is upheld. The concern is that cable
companies would move away from or substantially slow cable modem
deployment and focus on telephony, thereby thwarting the public policy
objective of rapid deployment of advanced technologies to all Americans.
Some of these analysts also feared that LFAs do not have the expertise
to develop workable "open access" requirements.

The local government representatives tacitly acknowledged that they did
not have the resources or expertise in some cases to develop a
comprehensive regulatory scheme for broadband access. (And privately,
some local and state authorities expressed reluctance to devise such
regulatory schemes.) Some local representatives expressed a strong
desire to see the federal government take the lead on this issue, by
providing formal guidance to states and localities, while permitting
them to maintain an enforcement role.

**V. ANALYSIS**

The rapid pace of change and the dynamic developments in broadband
communications present great opportunities for both American consumers
and the communications industry. Consumers stand to benefit from
improvements in technology, which will lead to the provision of greater,
faster, and more efficient services---all at affordable costs. Companies
providing broadband services and technology stand to benefit from an
expanding market, which will lead to increased revenues and a greater
number of products and services.

In order for these benefits and opportunities to be realized, however,
there must be a competitive marketplace. Government can promote a
competitive market by encouraging innovation, investment, and
infrastructure buildout. In so doing, government insures that innovative
and cost-efficient services will be provided to consumers by a diversity
of entities---or multiple pipes to the home.

The Commission's public interest mandate requires it to forbear from
regulation and allow market forces to flourish, but to intervene in the
event of market failure. In reaching this balance, the Cable Services
Bureau's staff recommends that the Commission forbear from imposing
regulation and continue to resist the urge to regulate prematurely. This
is not to say, however, that the Commission should be passive in the
face of anti-competitive behavior. At present, the appropriate balance
can be struck by monitoring the market and resisting the urge to fix a
system that does not appear to be broken and shows early signs of
healthy growth and competition.

A.  **Risks of the Commission Continuing Its Policy of Regulatory
    Restraint**

To be sure, there are potential risks associated with a continued policy
of regulatory restraint and monitoring. We acknowledge that some of the
principal risks include the threat of a cable monopoly of broadband, the
creation of irreversibly closed cable systems, and inconsistent local
regulation.

***Threat of Cable Monopoly of Broadband***

As mentioned earlier, one of the principal harms cited by "open access"
advocates is that the Commission's failure to act now will give cable
monopoly control over Internet access. Some "open access" proponents
predict that cable will be the leading and perhaps only viable platform
for broadband access to the home. In a recent White Paper submitted to
the FCC, the openNet Coalition described the potential for cable
operators like AT&T to develop a monopoly on broadband access to the
Internet. "AT&T's early advantage in broadband would be entrenched and
expanded \[if the government continued its policy of monitoring\] -- end
result Ma Web reigns."[^143]

In this same vein, some of the panelists warned that AT&T will be in a
position to totally dominate cable, Internet access, and Internet
content, thus gaining the ability to set standards for the entire
industry. Others expressed concern that as infrastructures are built,
architectures will be constructed so that it will not be possible to
take remedial action at a later time.

The Bureau recognizes that these risks are serious and can potentially
undermine the open nature of the Internet. At this point, however, the
Bureau is not persuaded that consumers are at risk of cable establishing
a bottleneck monopoly in broadband services in the absence of immediate
regulatory action. There have been no developments since the release of
the Section 706 Report earlier this year to alter the Commission's
conclusion that no monopoly exists. Moreover, the monopoly argument
wrongly assumes that cable is the only viable broadband pipe available
in the near term to provide Internet access to the home. As deployment
of DSL, satellite, and wireless advances, in large part spurred by rapid
cable modem deployment, consumers will have alternative platforms to use
for high-speed data access, telephony, and video services.[^144] We have
already seen evidence that these alternative technologies are attracting
new subscribers at an exponential rate, and that prices for these new
services are falling. As stated in the Section 706 Report:

> *By the standards of traditional residential communications, there
> are, or likely will soon be, a large number of actual participants and
> potential entrants in this market. Anti-competitive coordination among
> competitors is difficult in such markets*.[^145]

We believe for now that the emergence of alternative broadband
providers, with their competitive service offerings, features, and
prices, mitigates the risk that cable will become the gatekeeper to the
Internet.

We also believe that customer demand for choice ultimately will compel
cable operators to open their systems to unaffiliated ISPs. If a cable
operator opts for a closed, proprietary system in which consumers have
no choice of ISPs or have to purchase unwanted services as a condition
of subscribership, these companies will risk losing subscribers in favor
of more open systems.[^146] These operators also would be susceptible to
regulation intended to eliminate monopolistic and anti-competitive
practices. We believe that market forces and our ongoing monitoring
efforts will persuade cable companies to keep their networks open, even
in the absence of regulation.

Moreover, the import of the 1996 Act and the Commission's long-standing
policy of non-regulation of the Internet express a strong preference for
market-based solutions, not governmentally imposed solutions. Even if
there could be some "short-term improvements in retail competition \[by
the government mandating access\], it may also undermine incentives for
developing new methods to circumvent the influence of incumbents over
distribution."[^147] Despite the risks in the balance, our findings
support a continued policy of regulatory restraint to facilitate the
rapid deployment of multiple broadband technologies, including cable,
DSL, wireless and satellite. Unless and until anti-competitive behavior
surfaces, it is preferable to allow market forces to propel cable
operators and independent ISPs toward an "open access" system.
Market-based solutions devised by the parties will likely provide a
better framework for consumers.

***Threat of Creation of Irreversibly Closed Systems***

One of the more troubling prospects brought to our attention is of cable
operators designing their networks in a way that irreversibly restricts
the ability of unaffiliated ISPs to access the cable plant in a
meaningful way.[^148] This is a charge that the Commission should take
seriously. If cable networks are designed in such a way, the Bureau
acknowledges that it may be difficult, from an engineering and economic
standpoint, to re-engineer the networks in a way that grants meaningful
access to unaffiliated ISPs. We are encouraged, however, that the
general consensus among our panelists was that the cable architecture is
not irreversibly closed. The Commission's Office of Engineering &
Technology is actively monitoring the marketplace to determine if the
cable network architecture remains open. If signs develop that cable is
pursuing a closed, proprietary network design, the Commission should
take immediate and aggressive steps to prevent this result.

Although most cable companies have not provided unaffiliated ISPs with
direct access to their networks, we have seen no credible evidence that
cable network architecture precludes future modifications to allow such
access. The availability of a technology option to require cable
companies to provide "open access" in the future, if these companies
gain excessive market power and fail to negotiate with unaffiliated
ISPs, allows the government to stay its regulatory hand unless such
anticompetitive conditions develop.

***Threat of Inconsistent Local Regulation***

Finally, we address the claim by local governmental interests that the
Commission should give broad guidance to localities on how best to
encourage the development of open network architecture. Indeed, we have
witnessed LFA activity in this area.[^149] Inconsistent local regulation
potentially can disrupt the Commission's national broadband policy and
keep broadband technologies out of the hands of many Americans. While
some LFAs have opted for mandated access, we have been encouraged by the
decisions in Los Angeles and San Francisco, for example, where those
governments have decided to pursue a policy of monitoring and
restraint.[^150] We believe these local governments have followed the
guidance provided by this Commission in its Section 706 Report and the
recent *AT&T-TCI Order*.[^151]

The Bureau recommends that the Commission continue to engage in active
dialogue with local regulators across the country to make sure that
localities and the federal government work together to support a
national broadband policy.[^152] Local government representatives have
participated in these Monitoring Sessions, and we fully expect their
continued participation in the Commission's upcoming Section 706
proceeding. Numerous LFAs share the Commission's goal of a national
broadband policy. As the Commission's staff and localities continue to
work together toward maintaining a national broadband policy, the Bureau
is hopeful that we can avert the uncertainty generated by disparate
broadband policies in which not all Americans will share in the benefits
of broadband.

B.  **Benefits Of The Commission Continuing Its Policy of Regulatory**

**Restraint**

The findings from our Monitoring Sessions highlight the rapid pace of
change in the nascent broadband industry and the difficulty of placing
broadband services under any existing regulatory framework. The
Commission is well aware that "application of existing regulatory
categories is difficult, if not impossible to many forms of
Internet-enabled communications."[^153] Until the Commission has a
better view of how broadband technology will be deployed and used by
consumers, the Bureau recommends continuing the Commission's policy of
regulatory restraint and monitoring. The notion of applying prophylactic
"open access" measures -- whether they be in the form of Title II, Title
VI, or more simple unbundling regulations \-- before fuller development
of the broadband industry would be unsound public policy that could have
the unintended effect of impeding the rapid development of this
industry. The market is the only force, at this stage, that is
sufficiently dynamic and informed to create a competitive broadband
marketplace. We believe that market forces, coupled with ongoing
Commission monitoring of the marketplace, are the best hope for creating
an open network architecture and discouraging the formation of a closed
proprietary architecture.[^154]

Even if a regulatory scheme could be devised at this early stage, such a
scheme would likely be very complex and burdensome. The Commission's
experience from implementation and enforcement of the Title II
"non-discriminatory" interconnection and access requirements teaches us
that a complex regulatory and tariffing scheme would likely accompany
broadband access requirements. For instance, the seemingly simple
dictate in section 251(c)(2) of the Communications Act, which requires
ILECs to provide network interconnection and access by
telecommunications carriers at any "technically feasible point" on
"rates terms and conditions that are just, reasonable, and
non-discriminatory," has been the subject of complex and lengthy
rulemakings and litigation. This experience has been borne out in
Canada, where in 1996, the Canadian Radio-Television and
Telecommunications Commission required incumbent cable operators to
provide non-discriminatory access to unaffiliated ISPs. It took three
years for the CRTC to adopt rules requiring incumbent cable operators to
file tariffs and establish conditions for interconnection and resale by
independent ISPs. Even with this mandate, trials used to determine rate
schedules have not started, and are not expected to be completed until
next year. This type of regulatory delay, and its resulting uncertainty,
threatens to slow down the nascent broadband industry and would be
inimical to the intent of the 1996 Act.

Perhaps most significant, our monitoring efforts have not revealed any
monopolistic practices by cable operators that presumably would be the
predicate for any type of "open access" requirement. Admittedly, we are
in the early stages of the broadband revolution, and although cable has
an early lead, its telephone, satellite, and wireless competitors are
rushing to close the gap. Against this backdrop, it would be premature
for the Commission to establish a national "open access" requirement.

The 1996 Act was enacted to "promote competition and reduce regulation
in order to secure lower prices and higher quality services for American
telecommunications consumers and encourage the rapid deployment of new
telecommunications technologies."[^155] The Commission's charge is to
find ways to encourage market-based solutions and to avoid direct
intervention in competitive and well functioning markets. From the
evidence before us and from our independent research, it appears that
the prospect of mandated access could have a negative effect on
continued investment in broadband technologies and deployment.

Mandated access also could reduce the financial incentives and the
build-out capital for cable companies to make the large investments
necessary to upgrade their systems. Under such a scenario, AT&T, for
example, might opt to focus on deploying telephony services at the
expense of deploying Internet broadband services.[^156] While we are not
persuaded necessarily that cable operators would halt their nationwide
broadband deployment in the face of a mandated access requirement, there
is a significant and credible risk that rapid deployment of these
services to all Americans would be greatly compromised. Thus, faced with
no evidence of anti-competitive and monopolistic practices, the
Commission should continue to pursue its policy of not regulating cable
Internet access.

C.  **Evidence The Commission's National Broadband Policy Is
    Facilitating**

**Vigorous Deployment And Competition**

The data cited in Part III of this Report indicate that broadband
deployment in this country is growing and will likely grow exponentially
in the years to come. The rapid deployment of this technology to
consumers will depend in large measure, however, on the level of
investor interest and regulatory incentives provided to industry by
local and federal governments. One of our most significant preliminary
findings is that the Commission's policy of restraint on broadband
regulation has helped to create a fertile environment for growth.

The early deployment statistics and anecdotal evidence suggest that in
areas where cable modems are deployed, the deployment of DSL follows
closely. Sometimes DSL deployment spurs cable modem deployment, but it
is fairly clear that the rate of deployment of one technology influences
the rate of the other. As cable and DSL are deployed in the same
markets, we also have observed aggressive price competition. In various
markets, DSL prices have been lowered to be competitive with cable modem
service.

Moreover, it appears that the lack of an "open access" requirement for
cable-delivered broadband services has pushed independent ISPs to enter
into agreements with non-cable broadband services providers and thereby
has accelerated the pace of deployment. Specifically, there is
encouraging evidence that independent ISPs are entering into agreements
with LECs, CLECs, and satellite providers to deliver high-speed Internet
access. And in the not-so-distant future, the Bureau expects that cable
operators and unaffiliated ISPs will successfully negotiate carriage
arrangements. Such arrangements are in the best interest of business and
the consumers they serve.

**VI. CONCLUSION**

The Commission's mandate under the 1996 Act is to ensure that advanced
telecommunications capability is deployed to all Americans on a
"reasonable and timely basis." As part of that mandate, and at the
Chairman's direction, the Cable Services Bureau has vigilantly monitored
the broadband industry to collect information as to how this industry is
developing. A finding of market-based harm, however, would be a
necessary predicate for regulatory action. In the absence of such a
finding, the Bureau cannot recommend that the Commission take regulatory
action of any kind at this time.

Far from finding harm, the Bureau's monitoring efforts have revealed a
nascent residential broadband market containing a number of existing and
potential competitors. Cable, telephone, wireless, and satellite
companies are rushing to provide broadband services to the home. As a
result of this competition, consumers will have a wide selection of
broadband features, capabilities, and pricing from which to choose. It
is questionable that this multiplicity of choices would exist if the
government were to intervene at this early stage of the race.

Perhaps most importantly, government has provided the numerous
incentives to broadband companies to invest in and deploy their
technologies. By forbearing from imposing "open access" regulations on
cable operators, the Commission has fostered an environment that
encourages investment not only in cable, but also in the alternative
broadband technologies, such as wireless, satellite, and DSL.

The Commission should be mindful of the concerns and dangers cited by
the advocates of mandated access. It should be prepared to act swiftly
if the evidence of harm actually materializes. The Bureau believes that
the Commission should continue to monitor developments in the broadband
industry, resist the pressure to regulate this new and innovative
industry, and consider regulation only if competitive harms arise.

**ENDNOTES**

[^1]: ^\*^ The following staff of the Cable Services Bureau contributed
    to the research, drafting and production of this Report: Tasha
    Browning, Sunil Daluvoy, Donnie Fowler, Jay Heimbach, Adonis
    Hoffman, William Johnson, Anne Levine, John Norton, Clint Odom, Mike
    Perko, Michelle Russo, Quyen Truong, and John Wong.

[^2]: *See* John Schwartz, *How Much Room in the Fat Pipe?*, The
    Washington Post*,* at H01 (Sept. 19, 1999).

[^3]: *Inquiry Concerning the Deployment of Advanced Telecommunications
    Capability to All Americans in a Reasonable and Timely Fashion, and
    Possible Steps To Accelerate Such Deployment Pursuant to Section 706
    of the Telecommunications Act of 1996*, CC Docket No. 98-146,
    Report, 14 FCC Rcd. 2398 (1999) (Section 706 Report).

[^4]: ^"^

[^5]: *Id.* at 2415 ¶ 36.

[^6]: ^"^

[^7]: ^?^ *Id.* at 2423-24 ¶ 48.

[^8]: ^"^

[^9]: *Id.* at 2449 ¶ 101.

[^10]: *Applications for Consent to the Transfer of Control of Licenses
    and Section 214 Authorizations from Tele-Communications, Inc. to
    AT&T Corp.*, CS Docket No. 98-178, Memorandum and Order, 14 FCC Rcd.
    3160, 3198 ¶ 75 (1999).

[^11]: ^"^

[^12]: *Id.* at 3207 ¶ 96.

[^13]: Telecommunications Act of 1996, Pub.L.No. 104-104, 110 Stat. 56
    (1996) (1996 Act).

[^14]: The Internet is a worldwide system of public and private computer
    networks that allows for the exchange of information\--voice, video,
    data\--through a universal language (protocol) called TCP/IP. To
    access the Internet, the customer generally needs a computing device
    and a subscription to either an ISP or an OSP. The computing device
    translates the information from TCP/IP into a format that is
    recognizable (e.g. text, image, sound). The ISP or OSP provides the
    physical connection to the Internet, as well as Internet-related
    services (*e.g.,* Web-hosting, e-mail and proprietary content).

[^15]: *See* Chairman William Kennard, Connecting the Globe: A
    Regulator's Guide to Building a Global Information Community (1999),
    available at \<http://www.fcc.gov/connectglobe/sec9.html\>.

[^16]: ^\"^

[^17]: 1996 Act, § 706 (c)(1), 47 U.S.C 157 note.

[^18]: *Id.*

[^19]: *Id.*

[^20]: ^.^

[^21]: Section 706 Report, 14 FCC Rcd. at 2406 ¶ 20. We believe that
    Congress intended broadband to be faster than Integrated Services
    Digital Network (ISDN) service, which operates at a data rate of 128
    kilobits per second (kbps) and was widely available at the time the
    1996 Act was enacted.

[^22]: ^?^ *Id.*

[^23]: ^"^

[^24]: *Id.*

[^25]: ^"^

[^26]: *Id*. at 2406 ¶ 20 (citing Comments of Cincinnati Bell Tel. Co.
    at 7).

[^27]: Id*.* at 2407 ¶ 23 (citing Comments of e-spire Communications,
    Inc. at 4; Comments of Information Technology Association of America
    at 2 n.3).

[^28]: ^?^ *Id.* at 2407-08 ¶ 25.

[^29]: The information in this section is drawn primarily from Barbara
    Esbin, *Internet Over Cable: Defining the Future in Terms of the
    Past*, OPP Working No. 30, at 75-79 (Aug. 1998) (Esbin White Paper)
    (citing National Cable Television Association (NCTA),
    *Telecommunications and Advanced Services Provided by the Cable
    Television Industry* at 3-26 (April 1996); and NCTA, *The Cable
    Television Handbook*, Section 3 (January 1997)).

[^30]: ^.^

[^31]: ^"?^ The headend is the technological center of the system, where
    many programming operations and functions are processed, such as the
    reception of satellite delivered programming and broadcast signals.
    It includes facilities for descrambling incoming signals from
    satellite and broadcast programming networks, assigning them channel
    numbers, and processing them for retransmission over cable lines.
    The headend also contains electronic equipment for inserting
    advertising at the local level, encrypting signals for security
    purposes, and playing or producing public access/local origination
    programming.

[^32]:

[^33]: DSL comes in numerous varieties but fall into two general
    categories: symmetrical (SDSL) and asymmetrical (ADSL). ADSL is the
    most common form of DSL for the residential market.

[^34]: Jonathan Atkin, Ferris, Baker Watts, Inc., *Bring on The
    Bandwidth . .* ., at 45 (July 1999) (FBW Report).

[^35]: Salomon Smith Barney Telecommunications Services, *xDSL Breaking
    the Loop*, at 11 (April 1999) (Salomon Report).

[^36]: FBW Report at 45.

[^37]: *Id.*

[^38]: *Id.*

[^39]: Salomon Report at 15. Some of these implementation issues
    include: load coils; cross-talk; signal attenuation; digital loop
    carriers; and bridge taps.

[^40]: *Id.*

[^41]: FBW Report at 54.

[^42]: *Id.*

[^43]: Salomon Report at 5

[^44]: *Id.*

[^45]: *Id.*

[^46]: PriceWaterhouseCoopers, *Technology Forecast: 1999 (10^th^ ed.),*
    at 88 (1999); Salomon Report at 18.

[^47]: FBW Report at 63; Salomon Report at 20.

[^48]: *See* FBW Report at 63. Fixed wireless providers must also
    address the challenge reaching full production status on equipment
    that is necessary for large-scale commercial deployment.

[^49]: *Id.*

[^50]: *See* Section 706 Report at Appendix A.

[^51]: ^?^ Salomon Report at 22.

[^52]: ^?^ The transmissions for these broadband satellite systems would
    be sent and received using two-way antennas. In other words, both
    the downstream and upstream transmissions are provided through the
    satellites. Although DirecPC currently offers high-speed Internet
    access, it is a one-way system that utilizes the satellites for
    downstream transmissions and the existing telephone lines for
    upstream transmissions.

[^53]: ^?^ *See* 706 Report at Appendix A; ING Baring Furman Selz LLC*,
    The Satellite Communications Industry*, at 140-41 (May 1999) (ING
    Barings Report). The following list identifies several global
    broadband satellite projects (and their start of service date):
    Astrolink (2001); CyberStar (2000); Skybridge (end 2001); Spaceway
    (2002-3); Teledesic (2003).

[^54]: Some of the technology and engineering concerns include the
    following: developing affordable customer premises equipment;
    addressing signal attenuation during inclimate weather; in the case
    of low earth orbiting (LEO) systems, launching into space several
    dozen satellites.

[^55]: ^?^ PWC Report at 54 (1999).

[^56]: ^?^ Information in this section is drawn primarily from *Fifth
    Annual Assessment of the Status of Competition in the Market for the
    Delivery of Video Programming,* CS Docket No. 98-102, Report, 13 FCC
    Rcd 24284, 24313-24321 ¶¶ 52-59 (1998) ("1998 Competition Report"),
    and \<<http://www.cabledatacomnews.com/cmic/cmic1.html>\>

[^57]: ^,^

[^58]: *See generally
    \<*http://www.cabledatacomnews.com/cmic/cmic1.html\> A "cable modem"
    is the equipment that converts data transmissions from the cable
    headend for use in the subscriber\'s premises. In the home, a cable
    modem connects the cable television coaxial wiring to the user\'s
    personal computer. Despite its name, a cable "modem" is, in fact,
    not a MOdulator-DEMOdulator (MO-DEM) at all. Instead, most cable
    modems are simply "external devices that connect to a personal
    computer (PC) through a standard 10Base-T Ethernet card and
    twisted-pair wiring." These Ethernet connections enable a
    subscriber's computer to become part of the cable operator's virtual
    local area network (LAN).

[^59]: *See* \<http://cabledatacomnews.com\> A LAN is a computer network
    limited to an immediate area. An Ethernet is a very common method of
    networking computers in a LAN. An Ethernet will handle about
    10,000,000 bps and can be used with almost any kind of computer.

[^60]: Many operational issues exist including capacity management,
    traffic engineering, fault detection and clearance, failure
    recovery, provisioning, customer servicing, network administration,
    traffic policy management, etc. These areas are new and complex in a
    shared media, public high-speed data communications network. *See*
    \<http://www.matisse.net/files/glossary.html\>

[^61]: An Intranet is a private network inside a company or organization
    that uses the same kinds of software that you would find on the
    public Internet, but that is only for internal use. As the Internet
    has become more popular, many of the tools used on the Internet are
    being used in private networks. For example, many companies have Web
    servers that are available only to employees. *See*
    \<http://www.matisse.net/files/glossary.html\>

[^62]: Owned and operated by the ISPs, a regional distribution center or
    hub usually connects several cable headends to the public Internet.

[^63]: ^?^ Dial-up services require the user to place a telephone call
    connection to the ISP/OSP each time access to the Internet is
    desired.

[^64]: ^.^

[^65]: *See* 1998 Competition Report, 13 FCC Rcd. at 24416-17, App. B,
    Tbl. B-9.

[^66]: CableLabs is a membership organization consisting of cable system
    operators in North and South America.
    \<http://www.cablelabs.org/start_here/index.html\> In 1998, the
    International Telecommunications Union (ITU) approved the Data Over
    Cable Service Interface Specification System (DOCSIS) developed by
    CableLabs, as an international standard for the transmission of data
    over cable. CableLabs® *International Telecommunications Union
    Approves DOCSIS Modem Standard,* (news release) (March 19, 1998).
    The ITU standard sets forth definitions for high-speed, two-way data
    transmissions over cable.

[^67]: Currently, cable modems are available in some retail outlets, but
    these modems may not be technically compliant with DOCSIS standards,
    and may not be interoperable with modems that will appear after
    DOCSIS certification.

[^68]: *Cable Modem Subscriber Count Tops 1 Million,* Cable Datacom News
    (Aug. 1999), available at \<http://www.cabledatanews.com/cmic\>

[^69]: *Id.*

[^70]: *Id.* Traditional cable networks are one-ways systems wherein the
    video signals travel in one direction: from the cable headend to the
    subscriber's home or business. In the context of cable modem
    service, one-way systems utilize the cable wires for downstream
    transmissions and existing telephone wires for upstream
    transmissions

[^71]: ^.^

[^72]: 1998 Cable Competition Report, 13 FCC Rcd. at 24316 ¶ 55.

[^73]: *See \<*http://www.cabledatanews.com/cmic\>

[^74]: *See* \<http://www.cabledatacomnews.com/aug99/aug99-1html\> AT&T
    (formerly TCI), Cox Communications, and Comcast are the major cable
    partners in Excite@Home. Time-Warner Cable and MediaOne Group are
    the major cable partners in RoadRunner.

[^75]: *Id.* Approximately 275,000 of Excite@Home subscribers are in
    Canada, bringing its U.S. total to 395,000.

[^76]: *Id.*

[^77]: *\<*http://www.cabledatacomnews.com/cmic/cmic7.html\>

[^78]: *Imposing Common Carrier-Style Regulation on Cable Would Impede
    Deployment of Cable's High Speed Internet Service To Rural and Small
    Communities*, NCTA *ex parte filing* (May 1999). *See* High Speed
    Access Corp. homepage, \<www.hsacorp.net/pages/pnrl/mnr.html\>; ISP
    Channel homepage, \<www.ispchannel.com/press/01jul99.html\>. In
    rural and small communities where computer penetration is generally
    lower than the national average, the high fixed costs related to
    establishing high speed networks are spread over a smaller customer
    base.

[^79]: *Imposing Common Carrier-Style Regulation on Cable Would Impede
    Deployment of Cable's High Speed Internet Service To Rural and Small
    Communities*, NCTA *ex parte filing* (May 1999). The following list
    provides few examples of cable systems offering broadband and/or
    high speed Internet access to rural and small markets:

    In North Dakota, Cable Services Inc. has recently partnered with ISP
    Channel to offer residential and business broadband services to
    Jamestown and Valley City.

    Midcoast Cable, in partnership with High Speed Access (HSA) Corp.,
    is offering one-way high speed Internet service in its El Campo and
    Edna, Texas systems, which pass approximately 5,700 homes.

    TCA Cable TV, through its subsidiary TCA Communications, Inc., has
    launched broadband service in Bryan/ College Station, Tyler and
    Amarillo, Texas.

    Sjoberg's Cablevision Inc., has partnered with ISP Channel to offer
    high-speed cable modem service over a two-way hybrid fiber/coax
    network to its community in Thief River Falls, Minnesota, which has
    a population of approximately 8,200.

    Lakes Cable in Spirit Lake, Iowa has deployed the InterTECH IDS
    system to bring high-speed cable modem service to its cable system
    serving approximately 4,000 customers.

[^80]: Lehman Brothers, *ADSL v. Cable Modems: And the Winner Is . .* .,
    at 6 (June 1999) (Lehman Report). Even conservative estimates
    indicate that cable should have over 4 million broadband subscribers
    by 2002. Based on the current subscriber total of 1 million, cable
    broadband market should experience an annual growth rate of over 100
    % for the next 3 years.

[^81]: FBW Report at 78.

[^82]: AT&T stated that plant upgrades to support broadband should reach
    nearly 60% of homes passed by the end of 1999 and 90% of homes
    passed by the end of 2000. Similarly, MediaOne has stated that its
    plant upgrades will reach 70% by the end of 1999 and over 90% by the
    end of 2000.

[^83]: Lehman Report at 17.

[^84]: *See* \<www.home.net/source\>

[^85]: DSL figures available at
    \<http://www.telechoice.com/content/pressreleases/08171999.asp\>.

[^86]: *Id.*

[^87]: The deployment of DSL could have an adverse impact on the
    telephone companies' T1 business. T1 is a form of high-speed access
    that was sold primarily to business customers. With a price range of
    \$300 to \$3000 per month, the T1 business generated high profit
    margins for the telephone companies. Since the price point of DSL
    was lower, ranging from \$50 to \$1000 per month (depending on the
    type of DSL), the deployment of DSL service would undercut the T1
    business. *See* Banc of America Securities, Equity Division,
    *Wireline Telecom Services*, at 3 (April 1999). (BofA Report).

[^88]: DSL offerings have followed cable modem service in the following
    areas: Denver, San Diego, Phoenix, Los Angeles, and Salt Lake City.

[^89]: Lehman Report at 6. According to Lehman Brothers estimates, cable
    will capture 14.5 million subscribers and DSL will capture 10.5
    million subscribers by end of year 2007.

[^90]: BofA Report at 15, 25; Salomon Report at 26. For example, by
    year-end 1999, Covad plans to have its DSL service available
    nationwide to 26 million homes and 2.6 million businesses.

[^91]: Bear Stearns Report; *Cable Industry Outlook*, at 67, 71-78
    (1999) (BSR); Donaldson, Lufkin & Jenrette, *Cable Report*, at 19
    (Spring 1999) (DLJ Cable Report). DSL technology is distant
    sensitive, meaning that the signal degrades after travelling certain
    distances---normally 18,000 feet from the central office. G.lite
    does not degrade as fast as DSL when travelling lengths of up to
    18,000 feet. Having less degradation of the signal, G.lite
    effectively increases the telephone company's coverage area for DSL.

[^92]: BSR at 67. G.lite does not require installation of a voice/data
    splitter at the subscriber's home or business.

[^93]: DLJ Cable Report at 19.

[^94]: *DSL Deployment Surges Well Beyond Projections; Grows 5 Times
    Faster Than Cable in 6-Month Period*, at
    \<www.telechoice.com/content/pressrelease/08171999.asp\>

[^95]: DLJ Wireline Report at 23.

[^96]: Bill Menezes, *Lucent Says Solution Will Accelerate DSL Further*,
    Multichannel News\--Broadband Week (Aug. 2, 1999).

[^97]: BSR at 77; Communications Daily, July 21, 1999 (citing SBC 2Q
    Earnings Report; SBC is signing up 1,500 new subscribers per week in
    California alone); Lehman Report at 6.

[^98]: BSR at 77. At the end of the first quarter 1999, US West had
    30,000 DSL subscribers, of which 85% were residential subscribers.
    *DSL Access Race---May 1999*, available at
    \<http://www.telemagazine.com/issues/199905/tci/dsl.html\>

[^99]: *Id.* GTE's discounted pricing structure is 20% lower than its
    then existing lowest priced DSL service. This discounted DSL pricing
    is also comparable with cable modem pricing.

[^100]: US West's News Release, *US West New 'MegaBit Select'. . .*
    (July 7, 1999).

[^101]: DLJ Wireline Report at 23.

[^102]: *Id.*

[^103]: *EarthLink Taps GTE Internetworking For National DSL Network
    Services*, available at
    \<http://www.xdsl.com/newsrelease/xdsl/4698.asp?mode=welcome\>

[^104]: News Release, *EarthLink and MindSpring Announce Strategic
    Merger*, available at
    \<<http://www.mindspring.net/aboutms/press-releases/1999/0923.html>\>

[^105]: *Villagenet Inc. Enters National DSL Market*, available at
    \<http://www.xdsl.com/newsrelease/xdsl/4750.asp?mode=welcome\>

[^106]: *Covad Introduces New Services to Help Power the Next-generation
    Internet*, available at
    \<http://www.xdsl.com/newsrelease/xdsl/4703.asp?mode=welcome\>

[^107]: These fixed wireless providers have licenses operate at specific
    parts (or bands) of the spectrum. The following list details the
    various types of fixed wireless companies and their bands of
    operation: Multichannel Multipoint Distribution System (2.1-2.7
    GHz); Local Multipoint Distribution Service (28-31 GHz); Teligent
    (24 GHz); and Winstar (38 GHz).

[^108]: *See,e.g.,* Salomon Report at 21; *Winstar To Provide Boston
    Properties With Advanced Broadband Telecommunications Services*,
    July 8, 1999, available at
    \<www.winstar.com/PressRelease/78_boston_properties.htm\>;
    \<www.teligent.com\>. According to some industry estimates, ILECs
    are failing to meet the data needs of 750,000 multi-dwelling units
    in the United States---needs that could be quickly and inexpensively
    addressed with broadband wireless services. , *The 3G Force*, Red
    Herring No. 69 at 88 (Aug. 1999).

[^109]: ^?^ Nextlink's Website at
    \<www.nextlink.com/ra/info/rainfo.html\>.

[^110]: ^?^ *Id.*; Salomon Report at 21.

[^111]: ^?^ Previously, the Commission only licensed MMDS systems to
    provide one-way video services. In the fall of 1998, the Commission
    changed its licensing rules and permitted MMDS systems to offer
    two-way services, such as broadband access.

[^112]: ^?^ Hoexeter's CLECtive Notes, Issue #16, Goldman Sachs (July
    1999). Following its purchase of WBS America in July, Sprint now has
    access to almost 30 million households nationwide. Sprint plans to
    offer its broadband product called ION (Integrated Online Network)
    over its MMDS systems. As of the writing of this Report, MCI
    WorldCom and Sprint announced their intention to merge. Press
    Release, MCI *WworldCom and Sprint Create Pre-eminent Global
    Communications Company for 21st Century* (Oct. 5, 1999), available
    at \<<http://www.wcom.com/cgi-bin/pr/display.pl?cr/19991005>\>. The
    combined entity plans to offer a unique nationwide broadband access
    alternative to both cable and traditional telephony through a
    combination of DSL facilities and fixed wireless access using the
    combined company's nationwide MMDS spectrum.

[^113]: ^?^ ING Barings Report at 145.

[^114]: ^?^ *Id.*

[^115]: ^?^ *Id.*

[^116]: ^?^ *Id.*

[^117]: ^?^ *Id.* at 143.

[^118]: Cable operators are considered MSOs if they own and/or operate
    more than one cable system. MSOs are rapidly upgrading their
    hybrid-fiber coaxial cable networks to provide for two-way broadband
    services. Once upgraded, MSOs will be able to offer their
    subscribers an array of communication services, including digital
    video, telephony, and high-speed Internet. Examples include
    AT&T/TCI, Comcast, Cox, Cablevision, and Time-Warner Cable.

[^119]: Cable companies are regulated both by the federal government and
    LFAs. LFAs' authority includes jurisdiction over certain types of
    cable rates, rights-of-way, and franchise transfers. When a cable
    system is sold, its cable franchise must be transferred to the new
    owner. The LFA approves the franchise transfer. As part of the
    transfer process, some LFAs recently have decided to impose certain
    requirements on cable operators' provision of broadband services.

[^120]: Telecommunications companies that provide local telephony or
    voice services qualify as LECs. There are several variations of
    LECs. ILECs are the established local telephony providers in a given
    market. In most cases, GTE or the former Bell Operating Companies
    (Bell Atlantic, SBC, US West, BellSouth or Ameritech) are the ILECs,
    and they are subject to a host of regulatory requirements that
    include interconnection, unbundling, and resale obligations. Through
    a technology called Digital Subscriber Lines (DSL), ILECs are
    offering high-speed access through their existing telephone network.

[^121]: CLECs are new entrants to the local telephony market and compete
    against the ILECs for customers. CLECs focusing on providing data
    services are called DLECs. These companies are also utilizing DSL
    technology to provide high-speed Internet access to customers.

[^122]: Telecommunications companies that provide long distance
    telephony and data services are called IXCs. Many of these companies
    provide Internet backbone services that route Internet traffic among
    Internet service providers and other backbone providers. Examples
    include MCIWorldCom, Sprint, Qwest, and AT&T.

[^123]: ISPs generally offer businesses and consumers access to the
    Internet and other related services such as, e-mail, Web-site
    building and hosting. ISP offerings typically include dial-up
    analog, ISDN, dedicated and frame-relay based Internet connections.
    Although most ISPs currently offer only narrowband connections to
    the Internet, ISPs are partnering with various ILECs and DLECs to
    offer broadband connections. Examples include Earthlink, MindSpring,
    and Flashcom.

[^124]: OSPs provide the same functions as ISPs, but they also bundle
    those services with original and proprietary content. Like ISPs,
    OSPs have an interest in gaining access to as many broadband
    facilities as possible in order to offer new multimedia rich content
    and applications over the Internet. Examples include AOL, CompuServ
    Inc., Netcom, and Microsoft Network.

[^125]: Trade groups represent the viewpoint of their members in a
    particular industry. There are several trade groups that focus on
    Internet access issues, specifically cable broadband access. For
    example, the Association of On-Line Professionals and the openNet
    Coalition favor government action to compel access to the cable
    broadband networks. Commercial Internet Exchange and the NCTA oppose
    government mandating access to cable broadband networks.

[^126]: Public interest groups generally advocate on behalf of cable,
    telecommunications, and Internet consumers. Examples include
    Consumer Federation of America, Media Access Project and the Center
    for Media Education.

[^127]: These organizations and individuals conduct academic research,
    studies, and programs on public policy issues.

[^128]: According to Wall Street analyst reports, cable company stock
    prices have downturned in recent weeks due, in part, to investor
    uncertainty created by the "open access" activity in local
    franchising areas. *See* Communications Daily at 1 (Aug. 4, 1999).

[^129]: Randy Barrett, Karen J. Bannan, & Louis Trager, <Inter@ctive>
    Week Online (Aug 2, 1999).

[^130]:

[^131]: Internet service provider Internet Ventures, Inc. (IVI) has
    petitioned the Commission to issue a declaratory ruling confirming
    that ISPs are entitled to leased cable access under section 612 of
    the Communications Act. *See* Public Notice, *Petition Seeking
    Declaratory Ruling That Internet Service Providers Are Entitled to
    Commercial Leased Access to Cable Facilities under Section 612 of
    the Communications Act of 1934, as Amended*,

    DA 99-1104 (June 8, 1999). IVI proposes to offer its subscribers the
    ability to download video programming from the Internet, as well as
    the ability to retrieve data such as Web pages and e-mail.

[^132]: *See* Section 4(i) of the Communications Act, 47 U.S.C. § 154.

[^133]: In its recent Unbundled Network Elements (UNE) Order, the
    Commission declined, except in limited circumstances, to require
    incumbent LECs to unbundle the facilities used to provide high-speed
    Internet access and other data services, specifically, packet
    switches and digital subscriber line access multiplexers (DSLAMs).
    Given the nascent

    nature of this market and the desire of the Commission to do nothing
    to discourage the rapid deployment of advanced services, the
    Commission declined to impose an obligation on incumbents to provide
    unbundled access to packet switching or DSLAMs at this time. The
    Commission further noted that competing carriers are aggressively
    deploying such equipment in order to serve this emerging market
    sector. Press release available at
    \<<http://www.fcc.gov/Bureaus/Common_Carrier/News_Releases/1999/nrcc9066.html>\>.

[^134]: *See* Regulation Under the Telecommunications Act of Cable
    Carriers' Access Services, Telecom Decision CRTC 99-8, File No.
    8697-C12-02/98 (July 6, 1999) (requiring incumbent cable carriers to
    file proposed tariffs for high speed access services with supporting
    cost information).

[^135]: *Excite At Home Shares Decline 11% on Report*, Wall Street J.,
    at B6 (Aug. 10, 1999) ("AT&T maintains that it is committed to open
    access, and stressed that users can reach any Internet-service
    provider by clicking through Excite At Home's home page.").

[^136]: For example, the openNET Coalition is a group of ISP and LEC
    interests "dedicated to promoting the rights of consumers to obtain
    affordable, high-speed access to the Internet from the provider of
    their choice." \<http://www.opennetcoalition.org/who/\>. Hands Off
    The Internet is a coalition of Internet users "united in the belief
    that the Internet's phenomenal growth stems from the ability of
    entrepreneurs to expand customer choices without worrying about
    government regulation."

    \<http://www.handsofftheinternet.com/mission.asp\>.

[^137]: *See* Part I.C. of this Report.

[^138]: *See, e*.g., Mich. Sen. Bill No. 667, 90th Leg. (June 17, 1999)
    ("Each wireline broadband internet access transport provider who is,
    or is an affiliate of, an internet service provider shall provide
    any other requesting internet service provider access to its
    broadband internet access transport services, unbundled from the
    provision of content, on rates, terms, and conditions that are at
    least as favorable as those on which it provides the access to
    itself, to its affiliate, or to any other person. . . . The access
    required . . . shall be provided at any technically feasible point
    selected by the requesting internet service provider."); *but see*
    Minn. Senate File No. 1647, 81^st^ Legis. Sess. (March 24, 1999)
    ("Every municipality shall refrain from exercising or attempting to
    exercise regulatory authority over the Internet . . . or high speed
    data and Internet access services offered to subscribers over a
    cable communications system"). H.R. 2637, 106^th^ Cong., 1^st^ Sess.
    (July 29, 1998) (proposing to mandate non-discriminatory access by
    cable network by unaffiliated ISPs, including interconnection, on
    same terms and conditions as affiliated ISPs).

[^139]: In fairness to the parties advocating "open access," there does
    now appear to be a clearer meaning of the term. According to the
    openNet Coalition, "open access" refers to "the ability of consumers
    to choose the Internet service provider of their choice . . .
    Enabling consumers and their chosen Internet service providers to
    reach each other requires that Internet service providers not chosen
    by the cable company have the ability to purchase, on a
    nondiscriminatory basis, the use of 'last mile' communications
    facilities to reach consumers who are requesting their service."
    openNet White Paper at 23.

[^140]: Federal legislation is pending in the House of Representatives
    that would address this issue. *See* H.R. 2637, 106^th^ Cong.
    (1999).

[^141]: *See, e.g., Implementation of the Telecommunications Act of
    1996; Accounting Safeguards Under the Telecommunications Act of
    1996,* CC Docket No. 96-150, Report and Order, 12 FCC Rcd. 2993
    (1996) (and subsequent history); *Implementation of the
    Non-Accounting Safeguards of Sections 271 and 272 of the
    Communications Act of 1934, as amended*, CC Docket No. 96-149, First
    Report and Order and Further Notice of Proposed Rulemaking, 11 FCC
    Rcd. 21905 (1996) (and subsequent history).

[^142]: A peering arrangement describes the situation where firms
    exchange data traffic without charging one another (bill-and-keep).
    A local peering arrangement is when the exchange occurs at a site
    close to the end-users. This proximity essentially improves the
    performance and speeds of the Internet connection, as data traffic
    travels less distance.

[^143]: Frequently Asked Questions About AT&T's Acquisition of MediaOne,
    Open Access, and the Public Interest, CS Docket No. 99-251, at 24
    (Sept. 17, 1999)

    \<http://www.opennetcoalition.org/news/937594756.shtml\>.

[^144]: Corey Grice, *The Next Wave in Fast Net Access*, CNET News.com
    (July 28, 1999) ("The development of new high-speed conduits for
    Internet access may mute Internet service providers' call for access
    to cable wires, one of the main broadband technologies available
    today. Federal regulators, ultimately responsible for refereeing the
    open-access battle, are pushing to see as many broadband options as
    possible to enter the market.").

[^145]: *See* Section 706 Report, 14 FCC Rcd. at 2423-24 ¶ 48.

[^146]: David B. Kopel, *Access to the Internet: Regulation or
    Markets?,* Heartland Institute Policy Study No. 92, at 12-14 (Sept.
    24, 1999). "The clear lesson of the past 20 years is that companies
    with leading products stay in the lead only if they continue to
    produce superior products. There is no realistic danger that cable
    companies will dominate the broadband industry, unless the companies
    consistently deliver better value to the consumer than does the
    competition." \<<http://www.heartland.org/studies/kopel-sum.htm>\>.

[^147]: *See* Section 706 Report, 14 FCC Rcd. at 2469 (separate
    statement of Commissioner Michael K. Powell).

[^148]: Letter dated July 29, 1999, from Jeffrey Chester *et al*. to
    Chairman William Kennard at 1 ("the cable broadband networks can be
    intentionally manipulated to provide wide bandwidth to the user for
    commercially affiliated content, but significantly less bandwidth
    for generic and cable-unaffiliated Internet traffic.").

[^149]: *See* Part I. C. of this Report.

[^150]: We note also that San Francisco and Los Angeles would be bound
    by any pronouncement by the U.S. Court of Appeals for the Ninth
    Circuit, and that the pendency of the *Portland* appeal has some
    influence on these cities decision to refrain from mandating an
    access requirement. Other municipalities outside of the Ninth
    Circuit's jurisdiction may also be awaiting guidance on the legality
    of "open access" before they adopt any such measures.

[^151]: 14 FCC Rcd. 3160 (1999).

[^152]: *See* Chairman William Kennard, Address at the National
    Association of Telecommunications Officers and Advisors 19th Annual
    Conference (Sept.17, 1999).

[^153]: Esbin White Paper at 112. *See also* Jason Oxman, *The FCC and
    the Unregulation of the Interne*t, OPP White Paper No. 31, at 25
    (July 1999) ("The Commission should not, and has not, respond to the
    advent of innovative category-challenging services by squeezing them
    into existing regulatory categories.").

[^154]: AT&T Chairman C. Michael Armstrong stated that, \"We believe our
    cable customers should be able to access any portals and content
    they want to reach, \[b\]ut it should be done on the basis of a
    sound commercial relationship, not through regulation\" of the
    Internet or communications industry at large. Leslie Cauley, *AT&T
    to Shun Exclusive Pacts for Cable TV*, The Wall Street J., at B8
    (June 15, 1999).

[^155]: *See* 1996 Act, Preamble.

[^156]: As a CLEC, AT&T would be required to provide interconnection for
    competing providers of telephony services under section 652(a) of
    Title II, but would not be required to provide competitors with
    access to AT&T's network in the same way as ILECs under section
    652(b). *See* 47 U.S.C. 652(a) & (b). The regulatory burden on
    AT&T's provision of telephony services thus would be substantially
    less than a cable "open access" requirement on its provision of
    broadband services.