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                            Before the
                FEDERAL COMMUNICATIONS COMMISSION
                      Washington, D.C. 20554


                                )
In the Matter of                )
                                )
Inquiry Concerning the Deployment of )
Advanced Telecommunications     )       CC Docket No. 98-146
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  )
                                )


                              REPORT


     Adopted:  January 28, 1999              Released:  February 2, 1999


By the Commission:  Chairman Kennard and Commissioners Ness, Furchtgott-Roth, Powell, and
Tristani issuing separate statements.


                        TABLE OF CONTENTS

                                                        Paragraph

I.   INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . .  1

     A.   Executive Summary. . . . . . . . . . . . . . . . . .  1

     B.   Statutory Framework. . . . . . . . . . . . . . . . . .9

     C.   Overview . . . . . . . . . . . . . . . . . . . . . . 11

II.  TERMINOLOGY . . . . . . . . . . . . . . . . . . . . . . . 20

     A.   Definition of "Advanced Telecommunications Capability"  20

     B.   Standard for What Is "Reasonable and Timely" . . .   26

III. DEPLOYMENT OF ADVANCED TELECOMMUNICATIONS CAPABILITY. .   34

     A.   Introduction . . . . . . . . . . . . . . . . . . .   34

     B.   Deployment of Broadband Capability . . . . . . . . . 35

          1.   Investment in Broadband Facilities. . . . . . . 35

          2.   The Last Mile to the Residential Consumer . . . 45

          3.   Deployment to "All Americans" . . . . . . . . . 62

               a.   Backbone to Rural Areas. . . . . . . . . . 63
          
               b.   The Last Mile to Rural and Low-Income Consumers66

               c.   Elementary and Secondary Schools and Classrooms81

     C.   The Demand for Broadband Capability. . . . . . . . . 85

     D.   Conclusion . . . . . . . . . . . . . . . . . . . . . 91

IV.  ADDITIONAL ISSUES . . . . . . . . . . . . . . . . . . . . 99

     A.   Access to Broadband Systems  . . . . . . . . . . .  100

     B.   Access to Multiple Dwelling Units  . . . . . . . .  102

     C.   Internet Peering . . . . . . . . . . . . . . . . .  105

V    FURTHER ACTIONS . . . . . . . . . . . . . . . . . . . .  106
     
VI.  ORDERING CLAUSES. . . . . . . . . . . . . . . . . . . .  109

APPENDIX A:  Sources for Charts 2 and 3

                        I.  INTRODUCTION

A.   Executive Summary        

     1.   One of the fundamental goals of the Telecommunications Act of 1996 (the 1996
Act) is to promote innovation and investment by multiple market participants in order to stimulate
competition for all services, including broadband communications services.  In this Report, we
consider the deployment of broadband capability -- what Congress has called "advanced
telecommunications capability."  

     2.   Increasingly, all electronic communications are becoming digital.  Print, audio,
video, voice, and data can all be transmitted in digital form, as collections of ones and zeros. 
Broadband makes it possible to send and receive enormous amounts of digital information at high
rates of speed.  Widespread access to broadband capability can increase our nation's productivity
and create jobs.  Access to broadband can also meaningfully improve our educational, social, and
health care services.   

     3.   As discussed further below, the demand for broadband capability is growing
rapidly.  For consumers, access to broadband capability means that many new services and vast
improvements to existing services will be available.  These services could include real-time video
in addition to telephony, so that families that connect over the phone can see each other as well as
talk to each other.  They could also include the ability to download feature-length movies in a
matter of minutes.  In addition, access to broadband capability means being able to change web
pages as fast as changing the channel on a television.  As a result of these services, new
possibilities will open up for electronic commerce.  There may also be increased prospects for at-
home learning and working at home (a special help for those who are home-bound due to age or
disability), platforms for entrepreneurs to launch new information-based businesses and home-
based businesses, great improvements in medical treatment, and health care at home in
emergencies and for the chronically infirm -- all potentially at prices that large numbers of
consumers are likely to willingly pay.  Some of these services will be possible with enhancements
to today's cable, telephone, and other facilities.  Others, however, will require the deployment of
entirely new technologies, especially in the last mile to the home.

     4.   As Congress directed, we intend to ensure that broadband capability is being
deployed on a reasonable and timely basis to all Americans.  We are encouraged that, as the
demand for broadband capability increases, methods for delivering this digital information at high
speeds to consumers are emerging in virtually all segments of the communications industry --
wireline telephone, land-based ("terrestrial") and satellite wireless, and cable, to name a few. 

     5.   Congress has instructed us to assess the availability of advanced
telecommunications capability to all Americans, including in particular elementary and secondary
schools and classrooms; and to take "immediate action" if we find that such capability is not being
deployed to all Americans in a reasonable and timely manner.  We are committed to following this
instruction while also promoting the deregulatory and procompetitive goals of the 1996 Act.  Our
role is not to pick winners and losers, or to select the best technology to meet consumer demand. 
We intend to rely as much as possible on free markets and private enterprise.  

     6.   We certainly have not reached the ultimate goal that all Americans have
meaningful access to advanced telecommunications services.  Indeed, at such an early stage of
deployment of many broadband services, it is difficult to reach any firm judgment about the state
of deployment.  Nonetheless, we are encouraged that deployment of advanced
telecommunications generally appears, at present, reasonable and timely.  We base this
conclusion, in part, on the large investments in broadband technologies that numerous companies
in the communications industry are making.  We expect that these investments will lead, in the
near future, to greater competition in the broadband market and to greater deployment of these
services in a manner that is more efficient and includes all Americans.

     7.   Although we conclude that, at present, deployment of advanced
telecommunications capability appears to be reasonable and timely, we note that this conclusion is
based partly on actual deployment and partly on certain assumptions and predictions regarding the
future.  For instance, this Report uses actual subscribership as a proxy for "deployment" and
"availability."  Although we find this to be a reasonable approach, we acknowledge that it may not
be a precise estimate of actual deployment and availability.  In addition, the Report compares the
deployment of advanced telecommunications capability to the deployment of other
communications-related services.  Although deployment of another communications-related
technology may not necessarily furnish a perfect analogy to deployment of advanced
telecommunications capability, we believe that such empirical comparisons may be useful as one
objective method to evaluate deployment of broadband.  Finally, assertions of companies
regarding their plans for deployment, while helpful, may not ultimately prove accurate.  Given that
this Report presents a snapshot at the early stages of deployment, we remain cautious about
drawing definitive conclusions regarding the deployment of broadband services.  We will continue
to monitor the situation through annual reports and, in future reports, we hope to improve and
expand upon the data we receive and our tools of analysis.

     8.   Where necessary, we are already taking steps, partly in proceedings described in
Section V below, to ensure that overall market conditions for local telecommunications are
conducive to investment, innovation, and meeting consumer demand.  In another proceeding, for
example, we are considering measures to promote the deployment of wireline advanced services
by both incumbent Local Exchange Carriers (LECs) and new entrants.  We will continue to
monitor closely the deployment of broadband capability by providers using all technologies.  We
will not hesitate to reduce barriers to infrastructure investment and to promote competition so
that companies in all segments of the communications industry will have market-based incentives
to innovate and invest in new technologies and facilities.  We are committed to carrying out
Congress' directive to ensure that advanced telecommunications capability is deployed in a
reasonable and timely manner to all Americans.


B.   Statutory Framework

     9.     Section 706 of the Act is a Congressional mandate to the Commission to
examine the availability of advanced telecommunications capability to all Americans.  The statute
defines "advanced telecommunications capability," "without regard to any transmission media or
technology, 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."

     10.  In section 706(b), Congress specifically directs the Commission to begin this
inquiry, within thirty months of enactment of the 1996 Act, to find out whether advanced
telecommunications capability is being deployed to all Americans in a "reasonable and timely
fashion."  The Commission must complete the inquiry within 180 days, and must take "immediate
action to accelerate the deployment" of advanced telecommunications capability by removing
barriers to infrastructure investment and by promoting competition in the telecommunications
market if the inquiry determines that such capability is not being deployed in a reasonable and
timely fashion.


C.   Overview

     11.  In this Report, we consider the deployment of broadband to "all Americans" to
determine whether the pace of deployment is "reasonable and timely."  After defining some
statutory terms in Section II, we examine in Section III the deployment of broadband capability. 
Many large and medium-sized business and government customers have had access to broadband
for years, and in this proceeding we have heard few complaints from such customers that they, as
a group, do not have access to broadband technologies.   Therefore, this Report concentrates on
the consumer market.   

     12.  Numerous companies in virtually all segments of the communications industry are
starting to deploy, or plan to deploy in the near future, broadband to the consumer market. 
Current providers include cable television companies, incumbent LECs, some utilities, and
"wireless cable" companies.  In many areas, too, competitive LECs that serve large and medium-
sized business customers start with loops provided by incumbent LECs and add broadband
enhancements of their own, thus constituting another supplier of broadband for those customers. 
They also serve residential customers in the "small office, home office" market.  In addition, other
companies are considering providing broadband services to the consumer market, including
interexchange carriers (IXCs), information service providers (ISPs), cellular companies and
providers of broadband Personal Communications Services, and relatively recent licensees of
spectrum using both satellite and terrestrial "fixed wireless" technologies.

     13.  In Section III, we first examine trends in investment in broadband technologies and
facilities to determine whether companies are making the investment necessary to supply the
consumer market with broadband capability.  We consider investment in both backbone facilities
and the "last mile."  We find that broadband backbone facilities are being deployed in a
reasonable and timely manner.  We then focus in particular on deployment of facilities that serve
the "last mile," because the connection to the consumer has historically been the least competitive,
and most bandwidth-constrained, part of the communications network.  If all Americans are to
have meaningful access to broadband capability, there must be a solution to the problem of the
"last mile."  No matter how fast the backbone or network is, if the last mile to the consumer is
slow, then the consumer cannot take advantage of the network's high-speed capabilities.  

     14.  After examining the investments in and deployment of advanced
telecommunications capability in general, we next consider deployment of broadband capability to
specific classes of users, including people in rural and low-income areas, and schools and
classrooms.  We discuss elementary and secondary schools and classrooms first, and then people
in rural areas, low-income people, libraries and rural health care facilities.  In this section, we
examine the deployment of broadband capability to ensure that such services are made available to
all Americans as called for in section 706(b) of the 1996 Act.  

     15.  We next consider the demand for broadband capability.  We recognize that the
demand for such capability will turn on its price; demand for broadband capability will tend to
increase as its price declines.  In order to determine whether broadband capability is being
deployed in a reasonable and timely fashion, we must examine whether communications
companies are meeting demand. 

     16.  Overall, we find that, although the consumer broadband market is in the early
stages of development, it appears, at this time, that deployment of broadband capability is
reasonable and timely.  Nevertheless, this is an early snapshot of a fledgling market.  We find that
there is already a significant initial demand for broadband capability and we expect demand to
grow substantially in the coming years.  We are committed to ensuring that deployment of
broadband capability to the consumer market remains timely and reasonable as the market for
broadband develops, and that the supply of broadband meets consumer 
demand.
  
     17.  In Section IV, we discuss a number of key issues that may have a significant
impact on the deployment of broadband capability in the near future.  These issues are (1) access
to broadband systems; (2) access to multiple dwelling units for the provision of broadband
services; and (3) Internet peering arrangements.  Although we do not take action on these issues
at this time, we intend to monitor these issues closely.  

     18.  Finally, in Section V, we discuss some of the specific proceedings in which the
Commission is already taking steps to promote the availability of broadband capability.  In no
respect are we considering regulating the Internet.  Rather, through these and other proceedings,
we seek to reduce barriers to competition so that companies in all segments of the
communications industry have the incentive to innovate and to deploy new technologies and
services to all Americans. 

     19.  Consistent with Congress's directive that we examine these issues "regularly," we
plan to issue reports such as this one each calendar year.



                        II.  TERMINOLOGY

 A.  Definition of "Advanced Telecommunications Capability"

     20.  Section 706 (b) of the 1996 Act defines "advanced telecommunications capability"
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."  For purposes of this Report, we define "broadband" as having 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.  This rate is approximately four times faster than the Internet
access received through a standard phone line at 56 kbps.  We have initially chosen 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.  We also
include in broadband 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.     

     21.  We interpret "enabl[ing] users to originate and receive . . . telecommunications" as
requiring two-way telecommunications.  Thus, neither a conventional cable television system nor
a digital television signal, by itself, would be broadband within the statutory definition, for they
are both one-way.  

     22.  We define broadband as including a service in which the upstream and downstream
communications paths are not in one self-contained system or offering.  Thus, broadband could
include an upstream path supplied by a LEC and a downstream path supplied by a satellite
company.  This takes account of the fact that telecommunications in this country consists
increasingly of a "network of networks."  Both paths, however, must be capable of supporting a
speed in excess of 200 kbps in the last mile, as we discussed in paragraph 20 above.  

     23.  We further find that broadband service does not include content, but consists only
of making available a communications path on which content may be transmitted and received. 
In addition, we emphasize that whether a capability is broadband does not depend on the use of
any particular technology or nature of the provider.

     24.  Some facilities and services may not be "telecommunications" within the precise
terms of the Communications Act of 1934, as amended, but may as a practical matter be
competitive with advanced telecommunications capability.  One such service is broadband
provided over cable television systems, which we describe in paragraph 55 and Appendix A,
paragraph 6, below.  There is disagreement over the status of such services under the 1934 Act. 
We do not decide such issues, but we do consider such services in this Report.  By way of
analogy, a study of the future of "mass transit" between New York and Washington would need
to consider travel by car between the same points even if cars are not "mass transit."

     25.  Finally, we recognize that as technologies evolve, the concept of broadband will
evolve with it:  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. 
For example, we may find in future reports that evolution in technologies, retail offerings, and
demand among consumers has raised the minimum speed for broadband from 200 kbps to, for
example, a certain number of megabits per second (Mbps). 


B.   Standard for What Is "Reasonable and Timely" 

     26.  Business Customers.  Broadband services are available to most business customers
-- and have been for years in many cases.  BellSouth, for example, states that "[h]igh-end
business users, especially in densely populated areas, already have access to a wide array of
broadband networking and access capabilities."  The Progress and Freedom Foundation states in
more detail that:

     Businesses have been using digital bandwidth much longer than residences.
     Electronic Data Interchange, a protocol for computer-to-computer transaction of
     billing, purchasing, invoicing, and other business functions, pre-dates the Internet.  
     . . .   Until the rise of the Internet, many businesses were served by expensive
     private or leased facilities, obtained from value-added network (VAN) providers
     such as GE Information Services (GEIS) and IBM, as well as from local telephone
     companies, competitive access providers and long-distance carriers.  . . .  It is
     estimated that over 90 percent of Fortune 1000 companies have either established
     or plan to establish a corporate Intranet.  . . .  Leased T1 lines are increasingly used
     to access the Internet and public switched networks.  According to analyst
     Dataquest, the number of installed T1 lines will surge by about 23 percent per year
     during the next two years. 

The majority of commenting parties appear to agree that the deployment of broadband for large
and medium-sized business customers as a group is reasonable and timely, and we agree.  By that
we do not mean that every business in America is receiving all the broadband it wants at prices it
likes.  Rather, we interpret "reasonable and timely" to mean that businesses, on the whole, either
have access to broadband or, according to the best evidence, will have it soon.  Accordingly, in
this Report we focus on the consumer market.  

     27.  The Consumer Market.  In Section III below, we evaluate whether deployment of
broadband to the consumer market is reasonable and timely by considering the state of investment
in broadband facilities, the extent to which last mile facilities have actually been deployed,
deployment to "all Americans," and the state of demand. 

     28.  We define "the consumer market" as consisting of small business and residential
customers, to whom we sometimes refer collectively as "the residential consumer."  Because
there is little data in our record about small business customers, and because small business
customers share significant characteristics with residential customers, in this Report we will treat
residential customers as a surrogate for small business customers.

     29.  In addition, we believe it is useful to compare the initial deployment of broadband
with the deployment of other technologically advanced services whose deployment occurred
through profit-driven private enterprise in market conditions and ultimately reached all, or the vast
majority of, Americans.  Using objective data about comparable services that have actual
histories reflects how long it takes in the real world to raise capital, lay lines or build radio towers
or launch satellites, build marketing and sales and other operational staffs and skills, establish
brand identity and a good reputation with millions of consumers, and stimulate demand.  

     30.  We note that section 706 concerns not only the deployment of advanced
telecommunications capability, but also its availability.  The record before us focuses on
deployment of advanced capability, such as investment and construction plans, and generally lacks
information about availability, which we believe refers to a consumer's ability to purchase a
capability that has been deployed.    
     
     31.  As comparable services, we have chosen the original telephone in the 1870s, over-
the-air black-and-white television in the late 1940s, color television in the 1950s, and cellular
service in the mid-1980s.  We recognize that no two products or services are the same or are
deployed in exactly the same conditions.  Thus, while we make certain comparisons here, we hope
the parties in future proceedings of this type will assist us in refining the basis on which to make
such comparisons and, more generally, in measuring objectively whether deployment is reasonable
and timely.  We especially welcome suggestions about how to measure the market demand for
broadband by taking into account such actual indicia as prices, willingness to pay, specific desired
services, and the other complexities of consumer markets.

     32.  The first regular, sustained commercial offerings occurred for the telephone in
1876, for post-World War II over-the-air black-and-white television in 1946, for color
television in 1954, for cellular service in 1983, and, for broadband for residential customers,
apparently in 1996.  For broadband, therefore, we have just completed the second calendar year
of commercial offering.  In 1878, twenty-six thousand telephones were being rented, most of
them for business customers; in 1948, over-the-air black-and-white television had a residential
penetration of .4%; in 1956, there were approximately 160,000 color televisions in use; in
1985, there were approximately 340,000 cellular customers, almost all of them business-based. 
If the use of broadband by the consumer market, with adjustments to reflect the smaller
population of this country in previous decades, equals or exceeds the deployment of these similar
technologies at the same point after they were first offered to consumers on a regular, commercial
basis, then there is a strong indication that the deployment of broadband to the consumer market
is reasonable and timely. 

     33.  The rates of  residential 'penetration' of  these services are shown below in Chart
1.  
     

                            CHART 1
                                
                RESIDENTIAL PENETRATION RATES OF
                         NEW SERVICES 
                                
                      A: Telephone Service
                                
                                
                                
                                




  




















                            B: Other
























The data in paragraph 32 and Chart 1 lead us to two conclusions.  First, among residential
customers, all these services spread slowly in their initial years, at the beginning of the so-called
"S Curve."  Broadband for residential customers is today in a comparably initial stage. 
Therefore, although today all Americans do not have access to broadband, that fact alone does
not mean that deployment is not reasonable and timely.  Second, all these technologies eventually
-- and, in the case of over-the-air black-and-white television, very quickly -- achieved nationwide
penetration. 


    III.  DEPLOYMENT OF ADVANCED TELECOMMUNICATIONS CAPABILITY

     A.   Introduction

     34.  Before broadband capability can be made available to customers, communications
companies must modify existing facilities or construct new ones, both of which can require
substantial investment.  In assessing the growth in the supply of broadband capability (deployment
to all Americans), we first consider trends in investment in broadband facilities, including both
backbone and "last mile" facilities.  We then examine deployment of facilities that serve the "last
mile" to the consumer market, because the connection to ordinary consumers has traditionally
been the least competitive and bandwidth-constrained part of the communications network. 
Third, to ensure that broadband capability is being deployed to all Americans, we examine
whether investment is occurring in areas, and broadband is becoming available to groups, that
have been thought unlikely to be served in a reasonable and timely way.  Finally, we consider the
demand for broadband capability to ensure that consumer demand is being met.


B.   Deployment of Broadband Capability

     1.   Investment in Broadband Facilities

     35.  Although precise dollar figures and construction plans for broadband are not
generally available, publicly available data show that many companies in virtually all segments of
the communications industry have made tens of billions of dollars of investment in broadband
facilities.  These sums are large even by the standards of America's communications business. 
For example, Ameritech plans to spend $3 billion in 1999 in capital for all its communications
networks (wireline, wireless, and cable television).
Investment on this scale indicates strongly that, at the level of technological development and
manufacturing, advanced telecommunications capability is available at reasonable cost.

     36.  Deployment of broadband, both backbone and last mile, is occurring on a major
scale, for both business and consumer markets.  American business and the capital markets are
obviously betting that broadband will be successful in the business and consumer markets and
many companies are rushing to seize part of that success.  We expect that this sizeable investment
by numerous companies will translate in the near future into significant deployment of broadband
capability.  In the following paragraphs, we discuss the investments made by various segments of
the communications industry. 

     37.  The National Cable Television Association states that the cable industry's spending
on the deployment of two-way broadband via high-speed cable modems in 1997 alone totaled $6
billion.   One estimate is that 63% of all cable systems will be broadband-ready by 2001. TCI
has committed to spend $1.8 billion to upgrade its plant, in part to provide broadband services. 
TCI's upgrades are expected to be 60% completed by the end of 1999 and 90% completed by the
end of 2000.  Another major cable operator, Comcast, has spent over $1.2 billion over the past
three years to upgrade its cable systems, largely to be able to offer broadband.  In addition,
Microsoft's investment of $1 billion in Comcast, the investments of $210 million each by
Microsoft and Compaq in Road Runner, and AT&T's purchase of TCI for $48 billion all appear
to be motivated in part by a desire to enter broadband via cable television systems.

     38.  Long distance companies have recently constructed and upgraded enormous
amounts of broadband backbone.  AT&T already has built 40,000 route miles of fiber in this
country, and it continues to boost its capacity.  In 1997, AT&T spent $7 billion to build SONET
rings and improve its network.  It is also testing a technology that may increase the transport
capacity of its existing network by a factor of ten without requiring it to lay any additional fiber-
optic cable.  MCI quadrupled the speed of its Internet backbone, to OC-12 (622 Mbps), in
1996 and doubled that capacity in 1997.  Another long distance carrier, Qwest, has invested
$2.5 billion in, and is currently constructing, a broadband Internet Protocol network of nearly
20,000 miles.  It will operate at OC-48 (2.5 Gigabits per second or gbps) or faster, and is
scheduled to be completed in the second quarter of 1999.  When completed, the network will
reach 130 cities, which account for approximately 80% of all the voice and data traffic in the
United States.  Level 3 plans to invest $3 billion in broadband deployment, including
construction of a 15,000 mile fiber-optic cable network.  UUNet Technologies announced in
October 1997 a $300 million investment in backbone network infrastructure that will be leased to
Internet service providers, large corporations, and organizations with large Web sites.  In
addition, one company, IXC, has built an OC-48 switched network that is fifty times faster than
the common speed on backbone today.  Sprint also claims that its use of fiber optic technologies
in its backbone should, by 2000, enable one pair of Sprint fibers to handle seventeen times today's
combined volumes of AT&T, MCI, and Sprint without having to construct any new fiber. 
According to one industry participant, three years ago available bandwidth on the Internet's
backbone doubled every year, but today it doubles every four to six months.

     39.  Since 1993, over $20 billion has been invested in the space industry, of which
much has gone into the broadband satellite telecommunications sector.  Some estimates reveal
that approximately $65 billion in financing will be required over the next five years to fund the
next generation of satellites, including broadband satellite systems.  Satellite infrastructure
revenues for the time period 1997-2001 are estimated at $277 billion.  The Commission has
granted fourteen Ka-band licenses, including thirteen geostationary systems and one non-
geostationary system, Teledesic, which will deploy a low earth orbiting system.  Teledesic, for
example, has committed to spend $9 billion building world-wide satellite networks for broadband
service.  

     40.  As of 1997, utilities had installed 40,000 route miles of fiber optic cable
representing over 750,000 fiber miles, and they intend to install another 36,000 route miles in
the next few years.  Actual and planned utility-affiliated ventures in Boston, New York,
Philadelphia, Washington, and San Francisco areas have a capital budget for 1998 and 1999 that
is estimated at $850 million.

     41.  Competitive LECs have played a major role in the introduction of fiber rings and
new broadband technologies such as Asynchronous Transfer Mode, frame relay, and DSL. 
Competitive LECs, both wireline and radio-based, have raised between $15 and $20 billion to
invest largely in broadband.  The Commission's most recent report on fiber deployment states
that the amount of fiber owned by competitive LECs has been growing rapidly.  For example,
the members of DSL Access Telecommunications Alliance (DATA) have raised over $1 billion
in private markets for DSL ventures.  Another competitive LEC, Intermedia, has raised $2.5
billion in the last eighteen months with which to build broadband facilities.  

     42.  All this investment, especially that by cable television companies and  competitive
LECs, appears to have spurred incumbent LECs to construct competing facilities.  Incumbent
LECs, mainly the Bell Operating Companies (BOCs) and GTE, are also investing billions of
dollars in broadband technologies.  BOCs and GTE, for example, have announced plans to offer
broadband to approximately twenty million homes this year.  SBC has announced a "massive
rollout" of ADSL, "targeting more than 500 central offices and 9.5 million residential and business
customers by year-end.  In Bell Atlantic's service area, ADSL is available now to some
customers in the Washington, D.C., area and in Pittsburgh, with plans to add Philadelphia and the
Hudson waterfront of New Jersey next year.  Bell Atlantic has formed a marketing alliance with
America Online, Inc., in which Bell Atlantic hopes, by the end of 1999, to make ADSL available
to seven million subscribers.  Its goal is to offer ADSL to fourteen million customers by the end
of 2000.  And BellSouth has announced plans to offer ADSL service available to 1.7 million
customers in 30 markets by the end of 1998, and in 23 additional markets in 1999.

     43.  In addition, the Commission has allocated and licensed high bandwidth radio
spectrum that can readily be used to deliver broadband terrestrially.  Providers using this spectrum
are beginning to deliver a range of fixed services, including voice, data, and video, using
frequencies in the 24, 28/31, 38 and 39 GHz bands.  Although the marketing focus for most
fixed wireless companies is currently on small and medium-sized businesses, some may begin
offering limited residential service on this spectrum within five years.

     44.  In sum, it appears that a substantial investment in broadband technologies is taking
place across virtually all segments of the communications industry.  As one commenter states,
"[a]ccess to capital is very plainly not an obstacle to the effective provision of DSL services." 
MCI echoes this perception, saying "[i]f there have been any capacity constraints [in backbone], it
is not for lack of investment.  Instead, it has been because exponential growth in Internet usage
has surpassed expectations, although, in the end, supply has generally kept pace with such
demand."  In light of these facts, we disagree with the claim that there is a significant,
nationwide, and likely persistent shortage of Internet backbone.  As the text above makes clear,
supply, especially of backbone, is increasing rapidly.  We find that backbone facilities for
broadband are being deployed in a reasonable and timely fashion.  It appears to us that any
shortages are relatively small in scope and duration and reflect not lack of capital, construction, or
technologies, but the unforeseeable and enormous increases in demand for one of the most
successful technologies in recent history.  We expect that the sizeable investment will alleviate
any short-term "shortages" in broadband backbone.


     2.   The Last Mile to the Residential Consumer

     45.  The last mile to the residential consumer, historically served by telephone and cable
television incumbents, has generally been the least competitive and most bandwidth-constrained
part of the communications network.   Compared to a long distance line, a facility serving the last
mile is likely to be expensive on a per customer basis to deploy, to have linear rather than
exponential growth in use, and to require high maintenance per user.  In addition, existing
telephone and cable facilities were largely paid for in past decades, when construction costs were
lower.  They were also paid for by captive ratepayers, under regulatory protection from
competition and/or inherent economic conditions that conferred a de facto monopoly and ensured
recovery of costs, however slowly.  The incumbent LEC in each area is also financially strong and
well staffed.  These factors, among others, have combined to make entry against telephone and
cable incumbents very difficult.  This has denied residential consumers all the benefits of
competition, which lowered prices, increased choices and usage, and sped up innovation in
telephones, long distance, and mobile services over the past decades.
          
     46.  Broadband, however, opens the possibility of new facilities to serve the last mile to
the home.  Although telephone and cable incumbents already have facilities serving the last mile,
traditional telephone and cable plant are not ideally suited for broadband.  Ameritech, for
example, estimates that xDSL will not work on 45% of its loops today, and may never work on
20% of them.  Similarly, today's cable television plant, even after upgrading for two-way
broadband operations, may not be capable of providing all users in a neighborhood with very high
speeds.  Also, cable television systems are not now deployed in many business districts.  Indeed,
it may be that no one current technology is capable of meeting all residential consumers' demands
for broadband.  These factors may be an impediment to all Americans receiving advanced
services.   

     47.  A pessimistic observer might predict that the limitations of some broadband
technologies will lead to a patchwork of local broadband monopolies, with most new entrants
remaining fringe players.  In the consumer market, in this view, DSL will be the only successful
technology in one neighborhood, cable-based broadband in the next neighborhood, and satellites
in rural areas.  In addition, certain commenters argue that if economies of scale and scope in
broadband for the consumer market are significant, the present headstart of the cable companies
will give them an insuperable first mover advantage and leave them with the kind of dominance
they still enjoy in their core market for multichannel video program distribution (MVPD). 
While this pessimistic view may include broadband reaching all Americans, it does not foresee
competition for most residential consumers.

     48.  We believe it is premature to conclude that there will not be competition in the
consumer market for broadband.  The preconditions for monopoly appear absent.  Today, no
competitor has a large embedded base of paying residential consumers.  The record does not
indicate that the consumer market is inherently a natural monopoly.  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.  The facts that different companies are using different technologies to bring
broadband to residential consumers and that each existing broadband technology has
advantages and disadvantages as a means of delivery to millions of customers opens the
possibility of intermodal competition, like that between trucks, trains, and planes in
transportation.  By the standards of traditional residential telecommunications, 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. 
 
     49.  Moreover, it is very likely that the imperfections of existing broadband
technologies will lead to new technologies that will improve broadband.  Improvements may be
most notable in the use of wireless-based broadband technologies to reach isolated rural homes
and other high-cost areas, to avoid the expense of laying wire for the last mile, and to provide
wireless "last hundred feet" that avoid extensive work inside apartment buildings and other multi-
dwelling settings. 

     50.  The consumer market for broadband should be characterized by new products and
services being offered and costs falling as a result of technological change.  At the retail level, in
addition, competition among providers of broadband service may occur on price (different prices
and different rate structures (flat-rate and usage-sensitive)), quality of service (different volumes
and speeds of transmission in one or both directions), warranties against outages, technical
features (symmetrical and asymmetrical bandwidth, storage space), geography (one technology
working best in one kind of topography), and user-friendliness (some customers wanting just
easy-to-use e-mail and fast web access and others wanting their own personal web pages and
major multimedia applications).  

     51.  Indeed, new broadband technologies might even be capable of creating
competition for the telephone and cable incumbents in the core markets of narrowband telephone
and MVPD that they dominate today.  It may be that their rivalry in broadband will lead to each
entering the other's core market.  Or, perhaps these core narrowband markets will become
shrinking adjuncts to a larger, more rivalrous broadband market.  
 
     52.  Thus, we do not foresee the consumer market for broadband becoming a sustained
monopoly or duopoly.  We will fight any attempt to make residential broadband such a market,
because it would not perform well for consumers.  Economic theory teaches that, in countries that
are rich in resources and in which products can continually improve in quality, consumers benefit
from relatively fast innovation.   Innovations arrive sooner when many, rather than few, firms
enter.  Therefore, consumer welfare will be increased by more entry into the market for
broadband facilities and services.

     53.  Our experience in communications markets teaches that entry by many competitors
is the best paradigm by which to bring broadband to all Americans.  Entry by many competitors is
more likely to bring low prices, high quality, constant innovation and improved price-performance
ratios, a variety of different retail services, and as many ISPs and content providers as the market
will support.  In the following paragraphs, we outline the current deployment of improved and
entirely new broadband facilities that serve the last mile to residential consumers.  We begin with
those that seem most advanced in deployment at this time.

     54.  Cable television companies, as noted in paragraph 37 above, have begun upgrading
their cable facilities to provide broadband capability.   The most popular offering of broadband to
residential consumers is via "cable modems," offered by cable television 
companies within their cable service territories.  These include services such as @Home and Road
Runner.  @Home's base of homes with access to two-way upgraded plant increased from 7.9
million on June 30, 1998, to 10 million on September 30, 1998.  As noted above, "deployment"
does not necessarily mean that service is available in a practical sense.  At this time, we lack
information on how many homes passed are actually capable of obtaining the service.  According
to most estimates, cable television companies now have at least 350,000 residential customers for
their broadband offerings, although other estimates are as high as between 425,000 and
700,000. 

     55.  A growing number of public utilities are offering broadband within their utility
service territories.  They generally offer broadband capability in joint ventures with software and
content providers.  Utility-based offerings have begun in major northeastern cities, San
Francisco, and have begun or are under study in smaller cities such as Cedar Falls, Iowa
(population 34,298), Glasgow, Kentucky (population 12,351), and Batavia, Illinois (population
17,016).  Generally, these ventures provide high-speed Internet access on their own fiber inside
the utilities' existing conduits.  According to one estimate, they have passed 122,000 homes with
"advanced fiber," although no customer numbers are available. 

     56.  A number of competitive LECs, such as Covad, Rhythms NetConnections, e.spire,
and Network Plus are providing broadband to residential consumers, chiefly in the "small office,
home office" submarket.  Sprint plans in early 1999 to offer its Integrated On Demand Network
(ION) service, which uses DSL and which it says will greatly increase the speed and bandwidth
of its own and other LECs' facilities.  In addition, at least one competitive LEC, MachOne, has
announced that it intends to concentrate on mass market residential customers.  At this time, we
lack information on the number of homes passed by competitive LEC capability as well as the
number of homes to which such capability is available as a practical matter.

     57.  In a significant number of cities, so-called "wireless cable," MDS, or MMDS
companies are using spectrum around 2 GHz to offer broadband services to residential
consumers.  These cities include not only New York City and the San Francisco Bay area, but
also such smaller cities as Jackson, Mississippi (population 196,637), and Sherman, Texas
(population 31,601).  One estimate is that several million residential consumers could now obtain
broadband from such companies.  We lack information on the actual number of households
subscribing to broadband service from MMDS providers.

     58.  Incumbent LECs have improved their narrowband lines and assert that they are
planning to offer broadband on a large scale.  Their plans for expansion in 1999 and beyond, some
of which were described in paragraph 42 above, are ambitious.  According to one estimate,
incumbent LECs now provide broadband to approximately 25,000 residential consumers.  
 
     59.  All of these residence-oriented providers of broadband indicate that they intend to
expand their offerings quickly.  The providers of Road Runner, for example, state that, by the
year 2000, it will be available to all of the 27 million homes passed by Time Warner and
MediaOne as well as those homes passed by other affiliated cable companies."  

     60.  In addition, new satellite-based providers -- Loral's CyberStar unit, Hughes'
Spaceway, Lockheed Martin's Astrolink, SkyBridge, and Teledesic, among others -- are
planning to enter the residential broadband market in the next decade.  A growing number of
public utilities and wireless cable companies may also enter the residential broadband market.  Still
more entry for residential consumers is possible via "Third Generation" mobile wireless broadband
service by CMRS providers, AT&T's "Project Angel," over-the-air broadcasters using digital
broadcast spectrum, local multipoint distribution service at 28/31 GHz, providers of service
at 24, 38, and 39 GHz, and other high bandwidth wireless companies, providers of wireless
communications service, satellite master antenna TV companies, and high-altitude,
long-endurance platform (HALE) companies such as Sky Station. 

     61.  The following Chart shows current basic capabilities, typical providers, and
economics of some of these technologies (and, for comparison purposes, of current narrowband
technologies).

                            CHART 2
                                
         TECHNOLOGY DEPLOYMENT TO RESIDENTIAL CONSUMERS



Technology (1)
Service Providers (10)
Typical Marketed
Downstream
Residential Speeds
(11)
Current Availability
(12)
Cost to Provider (13)


Traditional Analog
Phone Wire (2)
ILECs, IXCs, ISPs,
CLECs
56 Kbps
Nationwide
N/A


ISDN (2)
ILECs, Utilities
128 Kbps
Most major cities
N/A


Satellite - Current
(3)
Satellite Operators 
(DirecPC)
400 Kbps


Nationwide 
$400-$500 (per subscriber)



ADSL (4) 
ILECs, IXCs, CLECs,
Utilities
1.5 Mbps
Some major cities,
suburbs and rural areas
$600-$800 (per subscriber)


ADSL-lite (5) 
ILECs, IXCs
1 Mbps
In trials
$400-$600  (per subscriber)


Cable Modems (6) 
MSOs, CLECs, Utilities
3 Mbps
Some major cities,
suburbs and rural areas
$800-$1000  (per subscriber)


Terrestrial Wireless
- LMDS
- 24/38 GHz (7)
LMDS Companies
24 GHz Providers
38 GHz Providers
1.5 Mbps
In over 30 major markets
$5000-$15000 (per building)


Terrestrial Wireless -
MMDS (8)
MMDS Companies

1 Mbps 

Some major cities and
suburbs; also
in 2-way trials 
$600 (per subscriber)



Satellite - Future (9)
Satellite Operators
(Geo and Non-Geo)
10-64 Mbps 
Under development
N/A


Sources for data in Chart 2 are in Appendix A.


     3.   Deployment to "All Americans"

     62.  Thus far, this Report has discussed the deployment of broadband in general terms. 
In section 706 (a) of the 1996 Act, however, Congress instructed us to "encourage the
deployment on a reasonable and timely basis of [broadband] to all Americans (including, in
particular, elementary and secondary schools and classrooms) . . ."   At this early stage, we
cannot draw any definitive conclusions about whether, if present trends continue, broadband
services will ultimately be deployed to "all Americans."  In this section, we discuss deployment of
broadband to particular classes of users that may be served least if deployment does not occur in a
reasonable and timely manner.


          a.   Backbone to Rural Areas

     63.  Some BOCs allege that broadband backbone, whatever its availability in major
metropolitan areas, will not extend into all rural areas under current conditions.  Thus, they
argue, rural consumers will be unable to access broadband by a local call, even if they have a
broadband facility serving the last mile.  The BOCs' solution to this perceived problem is to allow
them to provide broadband service across LATA boundaries.

     64.  At this time, we do not find that lack of backbone is a pervasive factor in rural
areas.  Cable television systems are widespread in rural America.  According to one study, over
ninety per cent of this country's population has access by a local phone call to several Internet
service providers.  Another five percent have access by a local call to one.  Only five percent
of Americans now lack access to any Internet service provider by a local call.  This proves that
Internet backbone is accessible to ninety-five percent of Americans as a technical matter.  In
addition, there should be alternatives to cable- and wireline-based broadband services for these
five percent of Americans.  Satellite-based multichannel video programming can reach all rural
areas in the contiguous United States and is most popular there.  This may foretell a similarly
widespread acceptance of satellite-based broadband access from future satellite-based entrants
into the consumer market. 

     65.  Although some rural areas may lack easy access to broadband backbone
facilities, the comments in this proceeding show that, at present, there is no widespread
shortage of broadband backbone in rural areas compared to other areas.  The Rural
Telecommunications Group, for example, specifically denies the existence of any such shortage. 
Further, if the tentative predictions we make elsewhere in this Report about the prospects for
competition and significant demand in the consumer market for broadband are correct, we expect
there to be sizeable investment in broadband backbone in rural areas.


          b.   The Last Mile to Rural and Low-Income Consumers

     66.  Some commenters raise the possibility of slow deployment of facilities serving the
last mile to rural customers.  They contend that in some rural areas the prices that rural
customers would be willing to pay might not induce any company to build broadband facilities,
especially to residential consumers outside of small towns.  Commenters also express concern
for consumers who will not be able to afford broadband service in the home and for entire
communities where, due to conditions of poverty, there may not be enough demand to attract
deployment.  Other commenters focus on consumers who can benefit more than most from
broadband and urge special measures to ensure that they can afford it.  These consumers include
persons with disabilities, schools and classrooms, libraries, rural health care providers. 
Commenters assert that broadband can greatly increase opportunities for education, jobs, social
and recreational life, and health care for these customers.
  
     67.  Some commenters urge relaxation of section 271's prohibition on the BOCs'
provision of certain in-region interLATA services.  Others propose Commission-mandated
schedules for the construction of broadband networks, expansion of the Commission's present
universal service programs, or more market-oriented solutions to the potential lack of
broadband facilities to particular classes of customers.

     68.  Other commenters, while not denying the special circumstances and/or needs of
these consumers, contend that the marketplace will meet the demand.  Indeed, some commenters
believe that the importance of communications to rural communities' health care, education,
economic life, and recreation, as well as the local and civic-minded ownership of many rural
carriers, will lead to more broadband in rural communities than elsewhere.  The comments also
state that some incumbent LECs, cable operators, and other carriers have begun providing
broadband services to schools, libraries, and residential consumers in some rural areas and that
three quarters of the members of the National Telephone Cooperative Association either have
deployed xDSL technology to some extent or are planning to do so.  
     69.  At this stage in the deployment of advanced services to rural communities, our
data is anecdotal and we can in no way conclude that all Americans have, or are about to have,
access to these services.  At the same time, however, it appears to us that companies are building
or providing these services in many rural areas and that the rural character of these areas will not
present an intractable barrier to deployment.  For example, Valley Telephone Cooperative in
south Texas, with a line density of less than one subscriber per square mile, as well as other rural
carriers, have deployed DSL or are testing it.  Incumbent and competitive LECs and Internet
service providers are testing ADSL in places such as Harrison, Arkansas (population 9,922),
Sergeants Bluff, Iowa (population 2,772), Winthrop, Maine (population 5,968), and Kamas, Utah
(population 1,061). 

     70.  In addition, incumbent and competitive LECs are not the only possible providers
of broadband in rural areas.  The cable television operator MediaOne states that it is now offering
broadband to "a diverse base of residential customers, including customers in . . . rural areas,"
including twenty-one small communities in New Hampshire.  We know of other deployments of
broadband by cable television companies in parts of rural South Dakota and Kansas and in such
small towns as Connelsville, Pennsylvania (population 9,229), Bedford, Virginia (population
6,073), Michigan's sparsely populated Upper Peninsula, Marshall, Minnesota (population 12,023),
and Payette, Idaho (population 5,592), and Durant, Oklahoma (population 12,823).    

     71.  Rural electric companies and cooperatives, who are among the utilities we refer to
in paragraphs 40 and 55 above, are other possible providers in rural areas.  In addition, fixed
wireless providers such as Winstar and Teligent are also possible providers of broadband in rural
areas, as are users of unlicensed spectrum.  

     72.  We lack information on the deployment and availability of advanced
telecommunications capability in disadvantaged urban neighborhoods.  Therefore, we are unable
to determine whether broadband is being deployed to those areas in a reasonable and timely
fashion.  There are, however, a number of ways that broadband can be brought into disadvantaged
urban communities.  It may appear initially in convenience stores, cafes and other public
accommodations (as did telephones and television), and schools and libraries.  Schools, libraries,
health care facilities, businesses, and academic and military concentrations can serve as anchor
customers, from which additional deployment can be made at relatively low cost.  Local
government authorities can encourage further deployment of high-capacity facilities by cable
companies through the cable television franchising process.  Incumbent LECs are also
committing to deploy broadband in areas of special need.  For example, SBC committed to
deploy broadband services in more than 200 communities in California, including such
traditionally underserved communities as East Palo Alto, South Central Los Angeles, Watts,
Hunters Point, Oakland, Compton, and San Francisco's Mission District.  A similar program
was adopted by Bell Atlantic for New York State.

     73.  At this time, we do not broaden our universal service programs.  In our Universal
Service Order, we adopted the recommendation of the Joint Board to support Internet access via
facilities with greater than voice grade quality only for schools, libraries, and rural health care
providers.  Given the apparent potential deployment of broadband in rural and low-income
areas, we do not re-examine that decision here. 

     74.  Moreover, we need to be particularly careful about any action we take to promote
broadband deployment, given the nascent nature of the residential market for broadband.  At this
time, the dimensions of broadband and the upper limits of market-based supply and demand are
unclear.  Moreover, some actions could contravene the intent of section 706 that our broadband
policy be technology-neutral and could skew a potentially competitive marketplace. 
Nevertheless, we will continue to closely monitor the rollout of advanced services in rural and
low-income areas, including in subsequent reports.  We are committed to ensuring the reasonable
and timely deployment of advanced telecommunications capability to all Americans, including
those in rural and low-income areas.  In addition, we may examine calls for expansion of our
present programs in future proceedings. 

     75.  We also recognize the enormous potential of broadband services to enhance
educational and employment opportunities for people with disabilities.  Advanced
telecommunications capability can dramatically increase communications access and quality of life
for this population.  People with disabilities are included within section 706's mandate that
broadband be deployed to "all Americans."  In addition to increasing telecommuting
opportunities, and therefore employment opportunities, advanced video and data technologies can
allow people with disabilities to obtain information in accessible formats and communicate with
others through telecommunications networks in accessible mediums.  In essence, advanced
telecommunications capabilities can, in some instances, allow people with disabilities to transcend
physical barriers posed by traditional telecommunications services. 
               
     76.  We caution, however, that the promise of advanced telecommunications capability
for people with disabilities will not be realized unless inherent barriers in telecommunications
products and services are removed, and accessible equipment and services are widely available
through mainstream markets.  There exists a genuine danger that people with disabilities will be
left out of the telecommunications revolution if telecommunications equipment and services are
not designed to be accessible to the broadest possible range of users.  Congress recognized this
principle through its enactment of section 255 of the Act.  Section 255 specifically provides,
among other things, that manufacturers of telecommunications equipment and customer premises
equipment, and providers of telecommunications services shall ensure that their equipment and
services are accessible to and usable by individuals with disabilities, if readily achievable.  

     77.  The Commission has not completed its final rules for section 255 at this time.  We
remind telecommunications service providers and equipment manufacturers, however, that the
provisions of section 255 are currently enforceable.  Finally, while we do not propose to change
any of our present programs in this proceeding, we are committed to taking advantage of any
opportunities to encourage the deployment of advanced telecommunications service to people
with disabilities.  Plans for the deployment of advanced services should also address the needs of
persons with disabilities.  We encourage the disability community to continue to provide
information to the Commission on any barriers to advanced telecommunications capability that
may arise as such advanced services are deployed. 

     78.  Finally, we find merit in the "demand pull" concept, which holds that consultations
between actual and potential suppliers of broadband and community leaders in traditionally
underserved areas can lead suppliers to more rapid deployment of broadband capability.  For
example, the Center for Media Education asserts that the cable television operators were initially
reluctant to wire low income areas for video service.  They preferred to wire affluent areas, which
they thought would be more profitable.  Once they did wire low income areas, however, they
discovered that such areas were among their most profitable.  The Alliance for Public
Technology suggests that community leaders that know the needs of their communities in such
areas may be able to coalesce enough demand to pull in profit-oriented suppliers.  We believe
that private efforts to stimulate demand pull may speed the deployment of broadband in
traditionally underserved areas.  

     79.  We emphasize that these suppliers are not only the incumbent LECs and cable
television companies.  They also include new and potential providers of broadband.  The latter
companies, because they lack a mature business, an existing customer base, and sunk investment
in narrowband technologies, may find serving small groups of customers, or customers with
unique needs, relatively attractive.

     80.  We repeat that we are finding only that the record evidence is insufficient for us to
conclude that broadband is not being deployed to "all Americans" in a reasonable and timely
fashion by private activities and our current programs.  If, however, in the future, we find that
broadband is not being deployed in a reasonable and timely fashion in specific areas or to
particular groups of customers, we will not hesitate to act.


          c.   Elementary and Secondary Schools and Classrooms

     81.  Section 706(b) of the 1996 Act specifically directs the Commission to assess the
availability of advanced telecommunications to elementary and secondary schools and
classrooms.  In addition to recognizing the importance of providing schools with access to
advanced services in section 706, Congress recognized the need for such access in section 254 of
the Act, which for the first time provides universal service support for advanced services to
schools and classrooms.  We note that section 254 of the Act expressly provides for universal
service support for advanced services to schools, libraries, and rural health care providers. 
Although section 706 concerns the availability to advanced telecommunications capability to all
Americans, including all of the entities listed in section 254, we limit our discussion in this section
to elementary and secondary schools and classrooms, because section 706 expressly mentions
these institutions.  

     82.  In the Act, Congress directed the Commission and states to take the steps
necessary to establish support mechanisms to ensure the delivery of affordable
telecommunications service to all Americans, including schools and classrooms.  Congress
further directed the Commission to define additional services for support for eligible schools and
classrooms and directed the Commission to "establish competitively neutral rules . . . to enhance,
to the extent technically feasible and economically reasonable, access to advanced
telecommunications and information services for all public and non-profit elementary and
secondary school classrooms . . . ."  On May 8, 1997, the Commission released the Universal
Service Order, implementing section 254 of the Act, and establishing a universal service support
system that became effective on January 1, 1998.

     83.  In the Universal Service Order, the Commission, among other things, established
the federal universal service support mechanism for schools and classrooms.  Consistent with
the recommendations of the Federal-State Joint Board on Universal Service, the Commission
concluded that all telecommunications services, Internet access, and internal connections would
be provided at discounts ranging from 20 percent to 90 percent to eligible schools and
classrooms.  The schools and classrooms support mechanism grants schools and classrooms
maximum flexibility to purchase the package of services they believe will most effectively meet
their communications needs, subject to the requirement that competitive bids are sought for all
services eligible for discounts under section 254.  The discount rate provided to a particular
school or classroom varies based on the percentage of students eligible for participation in the
national school lunch program and the classification of the school or classroom as rural or
urban.  When demand exceeds available funding and a filing window is in effect, funding
priority is first given to requests for telecommunications services and Internet access that are
received within an established filing window, and then to requests received within a filing window
for internal connections beginning at the 90% discount level. 

     84.  The Commission is confident that, consistent with the goals set forth in section 706
of the Act, the support mechanisms for schools and classrooms will help provide support for the
deployment of advanced services to schools and classrooms.  Applications were received for
support from the support mechanism for schools and classrooms during the filing window for the
1998-1999 funding year and on November 21, 1998, the Administrator began notifying schools
and classrooms of the results of their requests for discounts.  Although the Education and
Library Networks Coalition argues that the universal service support mechanisms are not
sufficient to implement section 706, we believe that it would be premature at this time to adopt
additional measures for deploying advanced services to schools and classrooms.  We expect
that, as implementation of the universal service support mechanisms continues, deployment of
advanced telecommunications capabilities to schools and classrooms will become widespread. 
Finally, we note that in the Universal Service Order, as recommended by the Joint Board, the
Commission committed to reviewing the definition of universal service on or before January 1,
2001.  We believe it would be appropriate at that time to assess whether the implementation of
the universal service support mechanisms has resulted in the deployment of advanced services to
schools and classrooms.


C.   The Demand for Broadband Capability

     85.  We next examine the demand for broadband capability.  In order to determine
whether broadband capability is being deployed in a reasonable and timely fashion, we must
consider whether the consumers' demand for broadband is being met.  The speed of future
investment and the success of that investment will depend, in part, on consumer demand for high-
speed services.  

     86.  At present, the demand for high-speed Internet access is the primary driver of
consumers' desire for broadband.  One statistical trend that indicates the vast potential of the
Internet-via-satellite market comes from Frost & Sullivan.  It estimates the market for
Internet-specific satellite earth stations will increase from approximately $101 million in 1998 to
$1.78 billion by year-end 2002.  We expect that the demand for this application of broadband
will continue to grow rapidly in future years.  In 1998, there were personal computers (PCs) in
almost half of American households and there were approximately 30 million home subscribers
to narrowband Internet services.  Experts project continued growth in the home PC and
Internet markets, elements of which are variously described as "increasing," "rapid[],"
"staggering," and "exploding."  Prices of home-oriented PCs are below $1,000 and high-speed
cable modem prices are below $350.  Many predict that these prices will continue to fall
significantly, with one commenter predicting that broadband cable modem prices will be below
$150 by the end of 1999.  These conditions indicate that there is a large pool of potential
residential consumers of broadband and that the pool is likely to grow in coming years.

     87.  As for the retail price of broadband, some offerings are already priced below $50 a
month.  The following Chart shows the present speeds and prices of several broadband (and, for
comparison, current narrowband) technologies.  It assumes that the customer already has
purchased a PC.
                                
                            CHART 3
                                
           TECHNOLOGY COSTS TO RESIDENTIAL CONSUMERS



Technology (1)
Cost to
Consumer -
Installation
(14)
Cost to
Consumer
- CPE (15)
Cost to
Consumer -
Monthly Basic
Svc (16)
Cost to Consumer -
Monthly Internet
Service (17)
Cost to
Consumer -
Total First-Year
Costs (18)
Monthly "Bits
per Buck" Ratio
(19)


Traditional
Analog Phone
Wire (2)
$0
$200
$20
$20
$680
1.4


ISDN (2)
$90 - $160
$300
$30-$50
$30-$50
$1385
1.6


Satellite - Current
(3)
$50

$300

$30-$50
$0 (included in
access fee)
$830
10.0


ADSL (4)
$100
$200
$50-$60
$0 (included in
access fee)
$960
27.3


ADSL-lite (5)
$0
$200
N/A
N/A
N/A
N/A


Cable Modems
(6)
$75-$150
$0 (incl. in
install fee)
$40
$0 (included in
access fee)
$593
75.0


Terrestrial
Wireless
- LMDS
- 24/38 GHz (7)
$200
$1000
$50
$0 (included in
access fee)
$1700
30.0


Terrestrial
Wireless - MMDS
(8)
$100
$400
$50-$70
$0 (included in
access fee)
$1220
16.7


Satellite - Future
(9)
N/A
$500-
$1000
N/A
N/A
N/A
N/A



Sources for data in Chart 3 are in Appendix A.

     88.  There appears to be a significant initial demand for broadband in the consumer
market -- at least 375,000 paying customers.  In addition, the first survey of which we are
aware shows that customers are highly satisfied with the most popular form of residential
broadband service on offer today, cable modem broadband service. 

     89.  Concerning specific services and applications, we expect consumers to demand
more than high-speed Internet access.  This may include high-speed, high-quality access to video
conferencing,  electronic commerce, which boomed unexpectedly over the recent holidays,
local area networks, hundreds of radio and television channels and individually requested
books, movies, and musical recordings.  Consumers may also demand broadband not only for
more and faster forms of today's products (e.g., movies), but also for new products that are
especially tailored to the Internet and/or broadband.  These products may include "magazines"
that are individually customized to fit the consumer's preferences, and interactive single- or multi-
player games including those on popular television shows.  

     90.  We therefore expect that the demand for residential broadband is going to grow in
coming years, in all likelihood making it a mass consumer product eventually.  It is not clear,
however, how quickly residential broadband will reach the point in the "S Curve" when supply
and demand rise sharply -- that is, when it begins moving from being a niche product to being a
mass market one.  Some of the products for which S Curves have been observed developed in
largely unregulated markets, which may have speeded their deployment.


D.   Conclusion

     91.  In this section, we apply the measurements discussed in paragraphs 20-25 and 31-
32 above, to the actual deployment of broadband to residential customers to date.  At such an
early stage of deployment to residential customers, it is difficult to reach any firm judgment. 
Nevertheless, based on the objective comparison we spelled out in paragraphs 31-32 above, which
compares the penetration of other nascent consumer products, the deployment of advanced
telecommunications capability to all Americans appears, at present, to be proceeding on a
reasonable and timely schedule.  Based on the record submitted in this proceeding, it appears
that the following numbers of residential customers, at a minimum, are now subscribing to
broadband: 350,000 from cable television companies and 25,000 from ADSL.  This amounts to
375,000 customers, or a residential penetration of approximately .4%.  The 375,000 figure is
understated because it attributes no customers to utility, wireless cable, and competitive LEC
offerings and because it is several months old in a business that is gaining new subscribers
rapidly.

     92.  375,000 residential customers, or .4% residential penetration, at the end of the
second calendar year of deployment is far more than the number of customers for the telephone,
color television, and cellular service at the same stage in their deployment, and approximately the
same penetration percentage as that of black-and-white television.   Even if the customer numbers
stated in paragraph 32 above were adjusted upwards to account for the smaller population of the
United States in past decades, there would still be fewer than 375,000 residential customers for
the similar technologies, except for black-and-white television.  We are further encouraged by the
fact that companies in virtually all segments of the communications industry are making sizeable
investments in broadband technologies.  We expect that these investments will lead to more
competition in, and greater deployment of, broadband generally, and in particular, to classes of
users, including people in rural areas, low-income people, schools, and classrooms.

     93.  The above, however, is a static snapshot taken at the present moment.  Ensuring
that deployment is reasonable and timely as the market develops continues to be one of our top
priorities.  We will, for example, examine barriers to entry to determine whether such barriers
inhibit firms' ability to meet customer demand.  Where immediate action is warranted, we are
taking steps, which we discuss in the next Sections, to ensure that the deployment of broadband is
reasonable and timely.  We will also continue to monitor closely the deployment of broadband to
all Americans, most specifically in future reports of this type.

     94.  Under most scenarios, competition among several facilities-based providers of
residential broadband will occur.  We therefore expect facilities-based competition in much of the
United States, even in the short term.  We also emphasize the importance of resale, major entry
into broadband by companies that do not currently offer communications services, such as
utilities, and new technologies such as next generation Ka-band satellite systems.

     95.  We think of broadband facilities as an input product, like microprocessors or
memory in the computer world.  For such products, a so called "virtuous cycle" can develop. 
Successive generations of input products provide more performance for the same amount of
money.  The greater performance enables current applications to perform better and fuels more
demand for them, and demand for new applications that were not feasible before.  We have seen
such a virtuous cycle in bandwidth in the SONET market for optical networking, in the local area
network market for desktop data communications, and in the modem market for consumers. 
Although we conclude that the current deployment of broadband appears reasonable and timely,
we anticipate seeing such a virtuous cycle for consumer market bandwidth, especially in facilities
serving the last mile.  As a result, we expect consumer demand to increase substantially in coming
years.

     96.  The demand pull concept adds consumers as a stimulus to the virtuous cycle.  As
the cycle gains momentum and cost decreases and performance increases, we expect that
companies will provide new applications and services for broadband consumers.  As a result,
more consumers will demand broadband, and the virtuous cycle will accelerate.  In this way, we
will reach our ultimate goal that all Americans have meaningful access to advanced
telecommunications capability and the benefits of the Information Age.

     97.  We expect consumers to demand, and the market to deliver, much more in coming
years.  We envision successive generations of bandwidth technologies for the last mile, each a leap
forward in speed from the current generation.

     98.  Although we conclude that deployment of broadband appears reasonable and
timely today, we will continue to monitor deployment of such capability, including through annual
reports.  We note that the pace of broadband deployment may need to accelerate in coming years
to remain reasonable and timely.  We expect to see deployment of broadband capability
continue and accelerate in the near future.  Moreover we will not hesitate to promote competition
and reduce barriers to infrastructure investment so that all companies have market-based
incentives to invest, innovate, and meet the needs of all consumers.


                     IV.  ADDITIONAL ISSUES

     99.  We note that many issues and proposals for action that we raised in the Notice and
that parties raised in their filings herein are being addressed in other proceedings, and we urge the
parties to participate in those proceedings.  Below, we address three issues on which we believe a
discussion of our general thinking would be particularly useful:  (1) access to broadband systems;
(2) access to multiple dwelling units; and (3) Internet peering arrangements.


A.   Access to Broadband Systems

     100. In the Notice, we asked generally about the kinds of regulatory structures that
would best foster the deployment of broadband and that would best fit the consumer broadband
market.  Few comments addressed these general questions, but many addressed one specific
regulatory issue, whether Internet service providers should be given rights of access to broadband
systems operated by cable television companies.  Many commenters took strong positions
favoring or opposing the placing of such an obligation on cable television operators.  

     101. We note, as a preliminary matter, that our duty to encourage broadband
deployment of advanced services requires us to look broadly at all methods of providing
additional bandwidth to customers, not just those methods provided by cable companies or other
particular types of service providers.  We observe further that the record, while sparse, suggests
that multiple methods of increasing bandwidth are or soon will be made available to a broad range
of customers.  On this basis, we see no reason to take action on this issue at this time.  We 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.


B.   Access to Multiple Dwelling Units

     102. Several commenters allege that they have encountered problems in providing
broadband to tenants in many apartment and condominium buildings and other multiple dwelling
units (collectively, MDUs) because they cannot obtain access on reasonable terms to the "last
hundred feet" of facilities to the tenant's unit.  In order to provide service to tenants,
communications carriers need access to wire within the MDU to carry signals to the individual
premises of each tenant that seeks their service.  In addition, wireless carriers, in particular,
state that they need access to rooftops for placement of their transmission and reception facilities
and to riser conduit for transmission of signals between their rooftop facilities and the building's
central service node.  Commenters allege that their access to these important service facilities
has been unreasonably obstructed both by incumbent providers and by building owners.

     103. Commenters suggest a variety of Commission actions that could promote the
availability of broadband to MDUs.  For example, among other things, commenters have
suggested that the Commission forbid exclusive access agreements between building owners and
providers.  Real estate interests, such as The Building Owners and Managers Association,
however, counter that a dynamic market for access to buildings is evolving and that building
owners have good reason to afford their tenants the services they want. 

     104. As of 1990, MDUs comprised approximately 28% of all housing units nationwide,
and that percentage is likely growing.  If a significant portion of these units is not accessible to
competitive providers of broadband, that fact could seriously detract from local competition in
general and the achievement of broadband availability to "all Americans" in particular.  We are
considering the issue of access to MDUs in several proceedings.  For example, WinStar has
requested that we apply section 224 of the Communications Act, governing regulation of pole
attachments, to require public utilities to make rooftop facilities and related riser conduit owned
or controlled by the utility available to competing providers of communications services.  In
these proceedings, we can address more fully any questions regarding our statutory or
constitutional authority to take any particular action and the need for action.  If the answers to
such questions show that Commission action is permissible and desirable, we will then consider
what actions will ensure that the deployment of broadband to all Americans is reasonable and
timely. 


C.   Internet Peering

     105. In the Notice, we asked whether the Commission should monitor or exercise
authority over peering -- an arrangement in which two Internet backbone providers exchange
traffic that originates from an end user connected to one of the providers and terminates with an
end user connected to the other provider.  Commenters almost unanimously oppose
Commission involvement at this time in peering and similar relations among Internet firms. 
Only one commenter, Bell Atlantic, suggests possible action, and that is only that we "lower
barriers for new entrants, in particular currently precluded entrants."  We agree with SBC that
premature regulation "might impose structural impediments to the natural evolution and growth
process which has made the Internet so successful."  Accordingly, we will continue to refrain
from action involving peering.  We bear in mind that "[t]he Internet and other interactive
computer services have flourished, to the benefit of all Americans, with a minimum of government
regulation" and that it is the policy of the United States "to preserve the vibrant and competitive
free market that presently exists for the Internet and other interactive computer services,
unfettered by Federal or State regulation; . . . ."


                      V.  FURTHER ACTIONS

     106. We will act whenever necessary to ensure that deployment of broadband to all
Americans proceeds at a reasonable and timely pace.  We will also continue to inquire annually
into the deployment of broadband.  We will issue another report next year and will, if we find that
deployment is not reasonable and timely, immediately take the actions required by section 706 --
remove barriers to infrastructure investment and promote competition in telecommunications
markets.  As we showed when we created our Bandwidth Task Force, we give the promotion of
broadband the highest priority and we are coordinating all our broadband-related efforts to insure
the greatest efficiency and effect.  We will complete proceedings that promote the deployment of
broadband capability, including proceedings concerning deployment of wireline broadband
services, commercial availability of navigation devices and access to facilities serving the last
hundred feet.  

     107. In addition, we will pursue wireless initiatives to ensure that wireless services, both
fixed and mobile, are true competitors in the consumer market for broadband.  We will continue
to allocate, auction, and license more spectrum for uses that include broadband, especially
facilities that serve the last mile and last hundred feet.  We will also move forward to implement
the next generation of mobile services and the re-examination of our 45 MHz CMRS spectrum
cap.  We will also work for efficient international harmonization of spectrum allocations,
product certifications, and technical standards for interfaces.  

     108. Moreover, we will promptly grant licenses so that broadband facilities can be built
promptly.  We will continue authorizing broadband capacity for traditional geostationary C- and
Ku-Band frequencies, such as those used by DirecPC.   We also expect to license new, innovative
systems in the Ka- and millimeter wave Bands.  Finally, we will use the tools at our disposal to
promote competition and remove barriers to infrastructure investment.  Through these efforts, we
seek to promote the reasonable and timely deployment of broadband so that all Americans will
have meaningful access to advanced telecommunications capability. 


                      VI.  ORDERING CLAUSES

     109. Accordingly, IT IS ORDERED that, pursuant to section 706 of the
Telecommunications Act of 1996, this Report IS ADOPTED.

     110. IT IS FURTHER ORDERED that the Motions to Accept Late-Filed Comments or
Reply Comments filed by APT, AT&T, Cablevision Systems, and U S West Communications are
GRANTED.


                         Federal Communications Commission


                         Magalie Roman Salas
                         Secretary
            APPENDIX A:  SOURCES FOR CHARTS 2 AND 3

1) Technology categorization simply refers to the means by which broadband services are
deployed (or expected to be deployed) to the consumer market.  We have not included other
technologies such as T-1, frame relay, etc., which are primarily offered to business customers.   
2) Traditional analog phone wire and ISDN (Integrated Services Digital Network) both represent
"narrowband" deployments to the home.  They are included for comparison purposes.  Regarding
the installation cost per customer, the assumption here for traditional analog phone wires is that
Internet service is provided over the primary line, which explains why the installation cost
associated with an additional line is not incurred.  Sources:  Kenneth Terrell, Breaking the Speed
Limit, U.S. News & World Rerport, Aug. 10, 1998, at 60;  Matt Richtel, Start-Ups' Hopes are
Riding on an Internet Route Through the Sky, N.Y. Times, Nov. 30, 1998, at C1. 

3) High-speed Internet access services are being offered today via geostationary satellites
positioned at approximately 35,800 kilometers above the earth.  The sole provider of such
services to residential consumers today is Hughes Network System's DirecPC.  DirecPC,
however, provides these high-speed services in the downstream direction only (a one-way
transmission).  Upstream traffic, by contrast, is carried via a conventional telephone connection.
The downstream/upstream speeds therefore differ dramatically, with current residential
downstream speeds ranging up to 400 Kbps and current residential upstream speeds typically
occurring at 28.8 Kbps or 56 Kbps.  For the downstream transmission, DirecPC charges
residential customers between $29.99 and $49.99 (which includes the Internet connection) for
either 25 hours per month or 100 hours per month. Additional hours are charged $1.99 per hour. 
Promotions are not included in these fees.  For the upstream path, customers incur no additional
charge above and beyond what they pay for local phone service.  See AT&T Comments at 17;
About DirecPC - Pricing, available at <http://www.direcpc.com/about/a34f.html>, visited Dec.
15, 1998.  As a side-note, another provider, Loral's CyberStar, L.P., launched geostationary
broadband services in October 1998, but these services currently are offered to business
customers only.  See Beam This Up, Tele.com, Dec. 1, 1998, available at
<wysiwg://41/http://www.techweb.com/se/directlink.cgi?TLC19981201S0022>, visited Dec. 15,
1998.

4) ADSL stands for asymmetric digital subscriber line data service, which rides on traditional
analog copper pairs of phone wire into the customer's premises.  ADSL and ADSL-lite are just
two of the many varieties of DSL technologies, which differ by speed and the method in which
they are deployed.  To date, ADSL has been the most popular and certainly the most widely
deployed in the consumer market.  Maximum downstream speeds for ADSL reach up to 9 to 10
Mbps, while upstream speeds range up to 640 Kbps to 768 Kbps.  See, e.g., AT&T Nov. 18,
1998, Ex Parte at 2, and DSL Summary Table, available at
<http://www.aware.com/technology/telecom/index.html>, visited Dec. 13, 1998.  Provider cost
numbers include the cost of equipment on both ends of the line, ranging up to $800 per link.  See
ADC Telecommunications, Inc., Jan. 11, 1999, Ex Parte at 7, 22; David Self & Jim Szeliga,
Running the DSL Numbers, at 6, available at
<http://www.americasnetwork.com/issues/98issues/980101/980101_fujitsu.html>, visited Sept.
17, 1998.  An important caveat to note when evaluating ADSL deployment is the constraint that
homes served generally must be within 18,000 feet of a telephone company's central office to
qualify for the service.  Cost figures related to installation, basic service and Internet service are
taken from multiple sources, including:  Copper Mountain Dec. 15, 1998, Ex Parte, Attachment
titled "DSL Overview for FCC," at 8; and Kenneth Terrell, Breaking the Speed Limit, U.S. News
& World Report, Aug. 10, 1998 and various websites of the Bell Operating Companies.

5) Also known as G.lite or "splitterless" ADSL, ADSL-lite differs from ADSL primarily in the
customer modem, which is self-installable and does not require a separate voice-data splitter at
every user site. ADSL, by contrast, requires a "truck roll" by a service technician to the
customer's premises to install the modem and voice-data splitter, and to test the inside wiring. 
The elimination of the truck roll reduces the provider's deployment costs significantly, by $200 or
more, according to Carol Wilson, Is 'Lite' ADSL The Real Thing?,   Inter@active Week, Nov.
2, 1998, available at
<wysiwyg://6/http://www.zdnet.com/i...tarchivestory/0,4356,370856,00.htm>;  Aware DSL Lite
Presentation at 5, available at <http://www.aware.com/dsl-lite/interactive_info.htm>), and is
viewed in the industry as the most likely variant of xDSL technologies to succeed in the consumer
market.  The typical residential downstream speed of 1 Mbps is based on a product recently
introduced by Nortel.  Maximum downstream and upstream speeds are estimated at 1.5 Mbps and
512 Kbps, respectively, which demonstrates that while G.lite may be easier to deploy than ADSL,
its data speeds are not as fast.  (See Copper Mountain Dec. 15, 1998, Ex Parte, Attachment titled
"DSL Overview for FCC" at 5;  AT&T Nov. 18, 1998, Ex Parte at 2; and Telecommunications
Technology - DSL Summary Table,  available at
<wysiwig://39/http://www.aware.com/technology/telecom/index.html>, visited Dec. 13, 1998). 
Finally, since ADSL-lite is still in trials at this time, no customers' price points have yet been
established.

6) Cable modems require upgraded hybrid fiber coaxial (HFC) cable, capable of two-way digital
transmissions.  Typical residential downstream speeds of 1.5 - 3 Mbps (on up to 10 Mbps) are
currently being advertised by cable providers.  See AT&T Comments, Exhibit E, "Comparison of
Prices In Areas Where Services Compete: Cable v. ILEC Broadband Access Services."  Assuming
a full 6 MHz channel is allotted, maximum downstream speeds can range up to 27 Mbps, while
maximum upstream data rates can reach up to 2 Mbps, assuming that several 1.6 MHz channels
are allotted.  See, e.g., AT&T Nov. 18, 1998, Ex Parte at 2; AT&T Comments at 11-12.  An
important distinction between cable modems and ADSL is that the HFC architecture is a shared
medium, meaning that cable modem subscribers all compete for bandwidth to the Internet,
although ADSL subscribers enjoy a dedicated connection.  Cable companies are working to
mitigate any traffic interruptions using several techniques, such as splitting nodes into sub-nodes,
which effectively reduces the number of subscribers sharing the cable bandwidth.

7) Local Multipoint Distribution Service (LMDS) operates in the 28/31 GHz band, representing
1.3 GHz of spectrum.  Currently, residential one-way broadband services are being offered at
downstream speeds of approximately 500 Kbps.  Upstream service is by standard telephone
copper wire.  See BellSouth Comments, Exhibit E.  Additionally, companies with licenses in the
24 and 38 GHz bands are offering two-way broadband services, but primarily to small and
medium-sized businesses, as well as to some large business customers.  See, e.g., Winstar
Comments and Teligent Comments.  Regardless of the spectrum band, point-to-point solutions
can achieve typical speeds up to 1.5 Mbps both downstream and upstream, and can reach
maximum speeds of 155 Mbps in both directions.  See ADC Telecommunications, Inc., Jan. 11,
1999, Ex Parte at 23.  New point-to-multipoint systems, which reduce the time and cost of
deployment, may reach data rates of 20 Mbps downstream and 3 Mbps upstream.  See ADC
Telecommunications, Inc. Jan. 11, 1999, Ex Parte at 23;  Bernard Herscovich, Broadband
Wireless Access From Vision to Reality, X-Change, at 3, available at
<http://www.vpico.com/xc/articles/822feat7.stm>.  With regards to consumer costs for
installation, customer premises equipment (CPE) and monthly service, sources are:  BellSouth
Comments, Exhibit E;  The Strategis Group, LMDS Marketplace:1997 Report at 231-32.

8) Multichannel Multipoint Distribution Service (MMDS) represents wireless spectrum blocks in
the 2.1 to 2.7 GHz band.  Typical residential downstream speeds vary greatly.  Current offerings
range from 256 Kbps (BellSouth Comments, Exhibit E at 1, see Wireless One information) to 1
Mbps and higher (American Telecasting Inc. Nov. 9, 1998, Ex Parte at 11).  Typical upstream
speeds are lower, in the 256 Kbps range  (American Telecasting Inc. Nov. 9, 1998, Ex Parte at
11).  Maximum speeds are considerably greater, comparable to HFC cable modem rates of up to
27 Mbps downstream and up to 2 Mbps upstream.  See AT&T's Nov. 18, 1998, Ex Parte at 2.  It
should be noted that the MMDS spectrum, until recently, supported one-way transmission only
(requiring a telephone return path for data services).  With the Commission's recent ruling in favor
of Multipoint Distribution Service (MDS) and Instructional Television Fixed Service (ITFS)
licensees being able to offer two-way digital services, MMDS providers may now offer 2-way
high-speed data services.  With regards to costs to consumers, retail prices vary from $49.95 up
to $69.95 per subscriber per month for unlimited Internet access.  See AT&T Comments at 16; 
Wireless Cable Modem Trials and Commercial Launches in North America, available at
<http://cabledatacomnews.com/cmic12.htm> visited on Dec. 14, 1998.

9) Future broadband offerings via satellites will be deployed over geostationary systems (at an
altitude of approximately 35,800 kilometers) and non-geostationary systems (at altitudes typically
below 2,000 kilometers for low-earth orbit satellites and approximately 10,000 kilometers for
medium-earth orbit satellites).  Currently, there are no providers offering such services, though
there are several who are constructing systems and who plan to start offering 2-way broadband
satellite services early in the new millennium.  Because of their 2-way capability, these services
will not need a standard telephone copper wire return path as DirecPC does today.  Typical
downstream residential speeds will range anywhere from 500 Kbps to 20 Mbps and, in some
instances, possibly as high as 64 Mbps.  Maximum speeds are being estimated at up to 155 Mbps. 
Upstream speeds will generally not exceed approximately 2 Mbps.  See John Montgomery, The
Orbiting Internet: Fiber in the Sky, BYTE MAGAZINE, Nov. 1997, at 10, available at
<http://www.byte.com/art/9711/sec5/art1.htm#117covt1>, visited Dec.15, 1998; Alcatel USA
Inc. Nov. 18, 1998, Ex Parte, Attachment titled "Broadband Wireless Access" at 36;  and AT&T
Nov. 18, 1998, Ex Parte at 2.  Cost information for these future deployments generally is not
publicly available at this time.

10) Service providers include incumbent local exchange carriers (ILECs), competitive local
exchange carriers (CLECs), interexchange carriers (IXCs), internet service providers (ISPs),
utility companies, multiple systems operators (MSOs), fixed wireless companies (holding LMDS
and MMDS licenses), and satellite providers of broadband services via geostationary satellites
(GEOs), via middle-earth orbit satellites (MEOs) and via low-earth orbit satellites (LEOs). 

11) Typical downstream residential speeds refers to the rate at which data is usually transmitted
from the service provider down to the residential customer.  Although many of the technology
platforms mentioned above can support faster rates, most residential users either will not be
offered these faster services (due to locational and technical limitations) or will not be able to
afford such services if they are being offered.  Higher speed services tend to attract primarily
business customers.

12) Availability of broadband services is as of December 1998 to residential users.  Availability of
such services is expected to expand over time.

13) Cost to provider refers to those incremental infrastructure costs associated with the provision
of broadband services, such as high-speed Internet access, to subscribers.  Typically, these "costs
per subscriber" will include equipment costs for both the transmission and reception of data
streams to and from subscribers.  The transmission equipment costs in particular require
penetration assumptions in order to amortize those specific costs across actual or expected
numbers of subscribers.  Reception costs refer to the CPE costs incurred by the provider and then
either leased or sold to the subscriber.  "Costs per sub" excludes all recurring costs such as the
cost of transporting the data streams and the cost to maintain the system, and one-time costs such
as customer acquisition costs and costs related to initial system infrastructure deployment (putting
satellites in the sky, upgrading cable fiber to 750 MHz, etc.).  We would expect one-time costs to
decline as providers gain market share and realize certain economies of scale and scope.      

14) Installation costs to customers refer to the one-time charge levied for a technician to visit the
customer premises to install the relevant customer premise equipment and test/manipulate the
inside wiring.  Over time, these charges are expected to decrease, if not end altogether (depending
on the technology platform), as new technologies and business partnerships with computer
makers eliminate portions of this one-time cost.  As complexity of services appears to limit sales,
companies are beginning to focus on making simpler, easier-to-use and -install products which are
more attractive to end users.  

15) CPE costs to customers refers to the relevant equipment that a customer must buy or lease to
subscribe to advanced services.  Such equipment could include modems and splitters, satellite
dishes, set-top boxes, fixed wireless antennas, etc.  These costs, too, are expected to decline as
standards are adopted and vendors manufacture subsequent generations of equipment.  Retail
markets for this equipment, particularly cable modems, are also expected to develop.

16) Monthly basic service costs to customers refers to the monthly fee a customer must pay the
service provider for the basic "pipe" into the home for a copper phone line, a cable wire, an
antenna, etc.  These costs will decrease over time if competition between different technology
platforms takes hold in markets around the country.   For example, we are already seeing DSL
services priced to be directly competitive with cable modems, and also some pricing plans which
vary based on usage and bandwidth (e.g., more expensive for faster speeds).  It should be noted
that the monthly basic service costs included here do not reflect bundled pricing discounts, etc.

17) Monthly Internet service costs to customers refers to the monthly fee a customer must pay to
gain access to the Internet.  This cost may be separate from, or may be included in, the monthly
basic service fee.  Typically, service providers give customers a choice of buying a bundled basic
service/Internet access option from them or of buying just the basic service.  In the latter case, the
customer would be responsible for signing up with a separate Internet Service Provider in addition
to signing up with the primary basic service provider.  Monthly fees for internet access typically
average $19.95.

18) Total first-year costs to consumers  includes both one-time and recurring monthly costs to the
end-user.  Where ranges of end-user costs are concerned, an average of the range was taken to
determine total costs.

19) The "bits per buck" ratio is a short-handed way to illustrate today's performance/price
trade-off that a typical end-user would face.  Specifically, "bits per buck" here refers to the
kilobits per second of data a user would receive for each dollar spent, based on recurring monthly
costs (not including one time costs for, e.g., CPE purchases and for installation).  The higher the
kilobits per second for each dollar spent, the better the value for the end-user.  Clearly, broadband
deployments in the lead today (based on subscriber numbers), such as cable modems, benefit from
having lower price points and higher data speeds.  However, as mentioned above, cable modem
service is a shared medium and is susceptible to traffic loads.  As traffic mounts, data speeds may
fall to the level of ADSL or lower.  ADSL and ADSL-lite, while offering lower data speeds, likely
will see price declines over the next 12-18 months to levels more in line with cable modem
pricing, thus improving their respective "bits per buck" ratios.        SEPARATE STATEMENT OF CHAIRMAN WILLIAM E. KENNARD
                                
     In the Matter of Inquiry Concerning the Deployment of
  Advanced Telecommunications Capability, CC Docket No. 98-146

       Promoting the deployment of advanced telecommunications capabilities to all
Americans is at the top of my agenda.  

       As today's Report concludes, we see billions of dollars being invested in broadband and
an extraordinary level of infrastructure deployment.  Advanced telecommunications capabilities
are being rolled out in this country at a rate that outpaces the rollout of previous breakthrough
products and services in the communications field.  So by this objective measure at least, we are
ahead of the curve.

       But it is very early in the game.  Therefore I want to make it very clear that this issue
remains at the top of my agenda.  Regardless of the objective measures we use to measure
deployment, on a subjective level I am impatient.  I want the Internet to go faster and farther, for
all Americans -- the young and the old, those in our inner cities and in our rural hamlets, those
with every advantage and those with special needs. 

       Those cut off from these high-speed networks today will find themselves cut off from
the economic opportunities of tomorrow. And more importantly, they will be cut off from the
most important network that there is -- the network of our national community.

       In Section 706, Congress said that if we find that deployment is not reasonable and
timely, we must take immediate action to remove barriers to investment and to promote
competition.  Don't think for a minute that our Report today lets us off the hook.  We must
always be looking for ways to remove barriers to investment and to promote competition.

       I am particularly concerned about deployment in rural areas and in inner cities.  Given
the early stage of deployment of advanced telecommunications generally, it may seem difficult to
discern the extent of the disparity between rural and urban areas.  But today's Report suggests
that in the very short term, demand for high bandwidth will really start to take off.  My concern in
that a geometric increase in demand may be mirrored by a geometric increase in the urban-rural
disparity.

       Our challenge is to ensure that deployment is as ubiquitous as possible, in rural areas as
well as urban areas.  The Common Carrier Bureau already issues regular reports on fiber
deployment, and I am directing them to re-double their efforts when it comes to scrutinizing the
needs of rural America and whether those needs are being met.

       Later today Commissioner Tristani and I will be leaving for New Mexico to hold
hearings on the need to increase the reach of modern telecommunications among Native
Americans.  And when I meet with the membership of the National Telephone Cooperative
Association in a couple weeks, I look forward to learning more from them about how the FCC
can help in the deployment of advanced telecommunications in rural America.

       It may well be that the answer, particularly in rural markets, lies in wireless and satellite
technologies.  It is therefore imperative that we continue to maximize the amount of spectrum
available for broadband uses.  In short, we must use all the tools we have to accelerate
deployment of advanced telecommunications throughout America.    

       We had intended to take actions in that regard today, in one of the rulemaking items
that we had to re-tool a bit in the wake of the Supreme Court decision.  In that item we would
have considered ways to give both incumbents and new entrants incentives to deploy DSL
technology quickly.  Staff is moving promptly to get that item back before the commissioners for
a vote.  

       That item will be a continuation of a number of recent initiatives by which we have
been bringing more bandwidth to the home.  We recently authorized two-way MDS service that is
permitting licensees in that wireless service to upgrade their offerings.  We also provided for the
relocation and expansion of spectrum in the 24 Ghz band.  Already we are seeing wireless
operators moving to take advantage of that increase in spectrum availability for the provision of
broadband.

       We also need to consider our universal service proceedings.  Among other things, we
need to make sure that wireless operators have the same ability as their wireline competitors to
obtain certification to receive universal service support.
       
       As I said before I am impatient.  Because every day counts.  For incumbents and new
competitors, for investors, and, most importantly, for the American consumer.  

       Finally, we must continue to monitor the extent to which broadband pipes are used to
expand, not restrict, consumer choice.  The Internet has grown enormously in recent years, in
large part due to the openness of the networks that make up the Internet and the interconnection
of all of them.  Many consumers are used to being able to dial-up access to the Internet provider
of their choice.  As new providers emerge, we must evaluate whether openness and connectivity
are the best means to achieve our goal, and that of Congress, to increase the useful deployment of
broadband.

       So while I am pleased to adopt this Report and its findings, our work is far from over.                       Separate Statement
                               of
                    Commissioner Susan Ness
                                
                                
       Re:    Inquiry Concerning the Deployment of Advanced Telecommunications Capability to
       All Americans in a Reasonable and Timely Fashion Pursuant to Section 706 of the
       Telecommunications Act of 1996, CC Docket No. 98-146

In Section 706 of the Telecommunications Act, Congress directed us to report periodically on the
progress of broadband deployment to all Americans.  Although the future is nearly impossible to
predict, I am optimistic about the level of investment in infrastructure and the early signs of
competition across technologies and among service providers.  Business customers, for example,
already have access to a plethora of broadband services.  As the use of the Internet expands both
at work and at home, consumer appetite for bandwidth will continue to grow. 

While I support the report and its findings, I write separately to elaborate on four points:

First, because consumer demand for bandwidth is increasing, how we define "advanced"
technologies will evolve over time.  Already consumers are becoming increasingly sophisticated as
are the applications they use.  More and more of these applications are interactive and make
creative use of color, graphics, and streaming video -- all of which require fast bitstreams.  The
gestation period for upgrading infrastructure to support new services, however, is not
instantaneous.  Thus, infrastructure providers must remain ahead of the curve, so that by the time
consumers demand advanced services, those services have been deployed and are available.  For
example, from the planning stages to a satellite launch can take five years or longer.  The cost of
high speeds, new features and capacity, however, ultimately is borne by consumers.  There is a
tradeoff between abundant two-way broadband capability and the cost involved to deploy such
capability to all Americans.  The marketplace is sensitive to these issues.  It does not make sense
for government to mandate excessive capacity well beyond consumer needs.

Second, we must ensure that advanced services reach "all Americans."  Broadband must be
available not only in our great cities, but across rural America.  Different broadband access
technologies work better in different locations and circumstances.  Terrestrial wireless and
satellite technologies, for example, are particularly well-suited to reach hard-to-serve areas.  Thus,
we have focused on allocating spectrum for wireless local loops.  In addition, several broadband
satellite systems are under development which, if deployed, could provide ubiquitous broadband
capability in the five-to-ten year timeframe.

Third, section 706 also specifically directs the Commission to assess the availability of advanced
telecommunications capability to elementary and secondary schools and classrooms.  We do not
want to fall behind our global competitors which are expending significant resources to equip their
students to compete in the global marketplace.  Our current universal service programs should
help to facilitate deployment of advanced services to schools and classrooms, although the
demand for funds to date has outstripped supply.

Finally, as our report makes clear, in no respect are we are contemplating regulation of the
Internet.  In fact, the Internet is a medium of communication that has grown enormously in recent
years with minimal government regulation.  Two characteristics of the Internet that have
contributed to its growth are its connectivity and openness.  By connectivity, I mean the ability of
backbone, last mile service, and content providers to become part of, or have access to, the
Internet.  By openness, I refer to the open, non-proprietary, technical standards by which the
Internet operates. These principles are worth preserving.  I am optimistic that, as multiple paths to
the home and to businesses emerge, the competitive marketplace will safeguard consumers'
interests in access, choice, and interoperability.  Because we are still in the early stages of
deployment, we should keep a watchful eye but practice regulatory restraint and give the
broadband marketplace a chance to work. 

One thing is clear: over the next few years, the broadband marketplace will be very dynamic.  For
now, the tools appear to be in place for deployment of advanced telecommunications capability to
all Americans in a reasonable and timely fashion.  We will continue to monitor deployment to
ensure that no barriers to competition or infrastructure investment arise. 
                     SEPARATE STATEMENT OF
              COMMISSIONER HAROLD FURCHTGOTT-ROTH

        Re:   In the Matter of 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).


       I support today's report that tentatively concludes that advanced services are being
deployed in a reasonable and timely manner.  While I recognize that not all Americans currently
have access to such services, the actual deployment of this emerging market is growing
dramatically.  Moreover, I am encouraged by the substantial investments in broadband technology
that numerous companies are making.  This is one example of the success of the
Telecommunications Act of 1996.  The 1996 Act, and its technology neutral approach,
anticipated that consumers would be able to receive such advanced services from a wide range of
competitors -- including incumbents and new entrants.  Indeed many of the companies offering
such services to consumers were created by the 1996 Act's emphasis on local competition.  This
report is concrete evidence that the 1996 Act is working.        SEPARATE STATEMENT OF COMMISSIONER MICHAEL K. POWELL

Re:    In the Matter of Inquiry Concerning the Deployment of Advanced           
          Telecommunications Capability to All Americans in a Reasonable and Timely 
          Fashion (CC Docket No. 98-146).

       In this statement, I write separately to explain the bases upon which I support this
Report. 

       The deployment of advanced services, particularly broadband services, will radically
transform American life, our society and our economy.  The greatest danger for regulators,
however, is our inability to keep pace with the speed of developments and innovations that the
new networks will unleash.  We must recognize that these new technologies, combined with the
pro-competitive provisions of the 1996 Act, are shattering the traditional telecommunications
paradigm.  As aspects of this Report suggest, competition and the free market, as opposed to
burdensome regulation, will ultimately prove to be the best means for achieving the widespread
deployment that Congress envisioned. 

       Section 706 of the Act commands that the Commission "encourage the deployment on
a reasonable and timely basis of advanced telecommunications capability to all Americans."  It is
beyond doubt that such capability is not currently available to even a majority of Americans. 
Indeed, the market for broadband services is still in its infancy, notwithstanding evidence that its
future growth will be strong.  Thus, what we do today should assuredly not be interpreted as
some finding that the lofty goal of Section 706 has been forever met and that our work is done. 
The remaining, I believe separate, question is whether deployment of advanced services, which is
now underway, is proceeding in a reasonable and timely way toward this lofty goal.  Based on
what we know at this early stage, I think it is, and thus I am pleased to support this Report.

       Although I fully recognize that all Americans do not yet have access to advanced
services, I agree with the Report's assessment that advanced services are being deployed in a
"reasonable and timely" manner.  Reasonable and timely achievement of the goal of deployment to
"all Americans" must contemplate that such widespread deployment will take some time.  But
there is not yet a solid consensus as to all aspects of what constitutes reasonable and timely
deployment.  I believe this Report takes important steps toward developing such a consensus.  In
order to further that process in future proceedings, I offer some principles here that should guide
our efforts to assess and encourage advanced services deployment.  In sum, I believe these efforts
must take into consideration such factors as the tools that Section 706 prescribes for encouraging
deployment of advanced services, consumer demand and willingness to pay, economic cost, and
technological limitations.  I begin to touch briefly on some of these factors in this statement. 

       I also support the Report for what it does not do.  In particular, I applaud the Report
for declining, as a general matter, to propose solutions in search of problems.  The Report
correctly notes it is likely that multiple methods of broadband access to customers will develop
over the next few years.  To support this statement, the Report points to the massive levels of
capital investment by the industry that in turn will cause extensive broadband deployment to all
areas of America.  The current market participants have a vested interest in providing advanced
services as rapidly as possible to all Americans who are willing to pay the economic cost of these
services.  Regulators must resist the temptation to play parent to these infant services and
prospective customers, dictating what products and services consumers will see, regardless of
what they value and are willing to pay.  Rather, regulators must strive to ensure the freedom of
both consumers and suppliers to determine the economically optimal set of services, prices and
availability in the open market.

       Notwithstanding the positive aspects of this Report, my participation in its
development persuades me that the Commission should keep several critical considerations in
mind as it undertakes future proceedings of this type:  

       First, I believe that our assessment of what constitutes "reasonable and timely"
deployment and that any actions resulting from that assessment should take into consideration the
specific methods that Congress has prescribed for encouraging more rapid deployment.  Through
Section 706, Congress has evidenced its intent that the Commission refrain from enacting
restrictive regulation in encouraging deployment.  Congress has prescribed methods by which the
market itself can facilitate growth.  Congress commands that the Commission, in the event of
unsatisfactory deployment of advanced services, "shall take immediate action to accelerate
deployment of such capability by removing barriers to infrastructure investment and by promoting
competition in the telecommunications market."  Notably, Congress has not, under Section 706,
created a program to mandate and fund deployment, but has instead instructed the Commission to
let the influx of market participants and investment capital accelerate deployment and thus benefit
all consumers.  Thus, Congress mandates that we encourage deployment by removing barriers to
investment and through other deregulatory market-based methods.  We should, therefore, refrain
from enacting cumbersome standards and from requiring "rollout" deadlines that may cause
hesitation from the capital markets, thereby delaying, rather than accelerating achievement of the
goals of Section 706.

       Second, and relatedly, I believe we should acknowledge that competition and
innovation are the results of self-interested market participants struggling to present the
marketplace with newer and more useful products at competitive prices.  We must keep in mind
that regulators do not drive competition, market participants do.  Our policies must reflect this
understanding if we are to achieve our ultimate goal of making advanced services available to all
Americans according to the methods Congress has presented. 

       Third, we should be mindful of the important distinctions between the advanced
services provisions of Section 706 and Section 254.  While there does appear to be a connection
between the universal service provisions of Section 254 and Section 706's concerns about the
availability of advanced services to school children, there are distinct differences between the
provisions' methods for achieving their respective objectives.  The placement of advanced services
provisions in Section 254(b) appears to contemplate the use of discounts or subsidies to support
services that the Joint Board and the Commission decide should be supported (presumably in an
explicit and competitively neutral fashion).  Section 706, on the other hand, instructs the
Commission to encourage reasonable and timely deployment to all Americans "by utilizing . . .
price cap regulation, regulatory forbearance, measures that promote competition in the local
telecommunications market, or other regulating methods that remove barriers to infrastructure
investment."  Again, in my view, the tools suggested for encouraging advanced services
deployment under Section 706 appear to be fundamentally more market-based and deregulatory in
nature than those suggested under Section 254. 

       Fourth, we should strive to develop a more realistic and, as such, complex
understanding of how we should measure the pace of advanced services deployment.  Such
measurement must, in my view, be sensitive to factors such as consumer demand, willingness to
pay, and economic cost.  It must decidedly not degenerate into some arbitrary, subjective or
political measure, based on what "goodies" we wish to give to consumers, however well-deserved
or well-intentioned.  The Report's analysis demonstrates that no two services can be deployed in
precisely the same manner, and as such, any comparisons must be flexibly drawn.  As the 1996
Act ushers in new levels of competition for all telecommunications market participants, we must
take care to recognize that past experiences with a non-competitive market will have limited
usefulness.  I appeal rigorously to commenters in future proceedings of this type to help us
develop a richer understanding of how we should measure advanced services deployment
consistent with the procompetitive, deregulatory framework Congress has erected.

       Finally, as I said in my statement on the Notice initiating this proceeding, I believe we
should be aware that requiring certain firms to provide access to their facilities or services to other
firms or even to end users may have some unfavorable consequences.  In particular, I think we
should search for alternative solutions to encourage innovation and competition in the provision
of "last mile" transmission to homes and businesses.  While mandating access can bring about
short-term improvements in retail competition, it also may undermine incentives for developing
new methods to circumvent the influence of incumbents over distribution.

       In conclusion, I would like to emphasize my appreciation of the commendable effort
put forth by the Bureau, as well as that of my colleagues, on this critical and demanding issue. 
Additionally, I look forward to working with everyone at the Commission, in the States and in
Congress to help make our effort to encourage the deployment of advanced communications a
success.       SEPARATE STATEMENT OF COMMISSIONER GLORIA TRISTANI
                                
In the Matter of Inquiry Concerning the Deployment of Advanced Telecommunications
Capability to All Americans in a Reasonable and Timely Fashion, Etc., CC Docket 98-146


       Section 706 of the Telecommunications Act of 1996 vests tremendous responsibility in
the Commission.  Beginning with today's Report, we must regularly assess whether advanced
telecommunications capability is being made available to "all Americans on a reasonable and
timely basis."  If we find at any time that it is not, we must "take immediate action to accelerate
deployment of such capability."

       In order to fulfill our obligation under Section 706, we need a full and accurate picture
of the state of deployment of advanced telecommunications services.  We need to know what
advanced services are being offered and specifically where they are being deployed.  As the
Report acknowledges, for the most part we simply do not have that information.  Instead, the
Report largely relies on other types of evidence -- e.g., analogies, anecdotes and evidence of
investment -- in order to conclude that deployment of advanced services appears reasonable and
timely.  While I appreciate the effort in the Report to compensate for the lack of direct evidence in
the record, I write separately to underscore my belief that the lack of such evidence makes
drawing any conclusions about the state of deployment a tentative and inexact undertaking.  

       I am especially concerned about the lack of hard evidence when it comes to our
obligation to determine that advanced telecommunications services are being deployed, and are
available, to "all Americans."  Being from a rural state, I know the importance and the challenges
of ensuring that all areas of our country have access to the kind of services covered by Section
706.  Congress determined -- and I believe that it chose its words carefully -- that all Americans
should have access to the advanced telecommunications services that will permit them to compete
in today's information economy.

       I make these comments not to denigrate today's Report in any way.  But I hope that we
can build on this experience and improve our data and analysis for next year's Report.  To the
extent the record compiled in this proceeding is inadequate, I hope that we can ask more pointed
questions in the next Notice of Inquiry and, where necessary, be proactive in gathering
information ourselves.  Congress directed us to report on the state of deployment of advanced
services, not on the state of the comments submitted by outside parties.