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 Federal  Communications  Commission  FCC  01-  360 
 Before  the 
 Federal  Communications  Commission 
 Washington,  D.  C.  20554 


 In  the  Matter  of 
 Review  of  Regulatory  Requirements  for 
 Incumbent  LEC  Broadband 
 Telecommunications  Services 


 ) 
 ) 
 ) 
 ) 
 ) 


 CC  Docket  No.  01-  337 


 NOTICE  OF  PROPOSED  RULEMAKING 
 Adopted:  December  12,  2001  Released:  December  20,  2001 
 Comment  Date:  45  Days  After  Publication  in  the  Federal  Register 
 Reply  Date:  30  Days  After  Comment  Date 


 By  the  Commission:  Chairman  Powell  and  Commissioner  Copps  issuing  separate  statements. 


 TABLE  OF  CONTENTS 
 Paragraph 
 I.  INTRODUCTION  ............................................................................................................  1 
 II.  BACKGROUND...............................................................................................................  8 
 A.  STREAMLINING  REGULATION  OF  FIRMS  IN  INCREASINGLY  COMPETITIVE  MARKETS  ...........  9 
 B.  COMPETITIVE  SAFEGUARDS  TO  ENSURE  COMPETITION  IN  RELATED  MARKETS  .................  13 


 III.  IDENTIFICATION  OF  INCUMBENT  LEC-  PROVIDED  BROADBAND  SERVICES 
 MARKETS..............................................................................................................................  17 


 A.  RELEVANT  PRODUCT  MARKET  ........................................................................................  18 
 B.  RELEVANT  GEOGRAPHIC  MARKET  ..................................................................................  27 
 C.  MARKET  POWER  ANALYSIS  ............................................................................................  28 


 IV.  APPROPRIATE  REGULATORY  REQUIREMENTS  .................................................  33 
 A.  OVERVIEW  .....................................................................................................................  33 
 B.  EXISTING  REGULATORY  STRUCTURE  ...............................................................................  35 
 C.  ALTERNATIVE  REQUIREMENTS  ........................................................................................  38 


 V.  PROCEDURAL  MATTERS..........................................................................................  49 


 VI.  ORDERING  CLAUSES..................................................................................................  66 
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 I.  INTRODUCTION 
 1.  In  this  proceeding,  we  initiate  an  examination  of  the  appropriate  regulatory 
 requirements  for  the  incumbent  local  exchange  carriers  (LECs)  provision  of  domestic  broadband 
 telecommunications  services  (  broadband  services).  Here,  we  focus  on  traditional  Title  II 
 common  carrier  regulation,  historically  arising  largely  out  of  sections  201  and  202  of  the 
 Communications  Act  of  1934,  as  amended,  1  as  applied  to  incumbent  LEC  provision  of  broadband 
 services.  2  In  particular,  we  seek  comment  on  what  regulatory  safeguards  and  carrier  obligations, 
 if  any,  should  apply  when  a  carrier  that  is  dominant  in  the  provision  of  traditional  local  exchange 
 and  exchange  access  services  provides  broadband  service.  This  is  one  of  several  proceedings 
 addressing  issues  raised  by  changes  in  the  marketplace  for  broadband  services  and  related 
 information  services. 


 2.  Three  of  these  proceedings,  including  this  one,  focus,  among  other  things,  on 
 regulatory  treatment  under  Title  II  of  broadband  services  and  the  facilities  over  which  they  are 
 provided.  More  specifically,  in  the  Title  II  proceedings,  we  are  initiating  a  broad  review  of  our 
 competition  policies  in  light  of  our  experience  since  first  implementing  the  market  opening 
 provisions  of  the  Act  and  developments  in  the  marketplace  such  as  the  birth  of  broadband 
 services.  In  addition  to  the  present  proceeding,  we  initiate  a  related  Title  II  proceeding  today  in  a 
 companion  Notice  of  Proposed  Rulemaking  (NPRM)  in  the  Triennial  UNE  Review  proceeding. 
 That  proceeding  addresses,  among  other  things,  incumbent  LECs  wholesale  obligations  under 
 section  251  to  make  their  facilities  available  as  unbundled  network  elements  (UNEs)  to 
 competitive  carriers  for  the  provision  of  broadband  services.  3  The  Commission  recently  released 
 two  additional  NPRMs  that  address  national  performance  measurements  and  standards.  4 


 3.  The  fourth  proceeding,  to  be  initiated  by  the  Commission  in  the  near  future,  will 
 address  the  basic  question  of  how  broadband  services  offered  by  wireline  telecommunications 
 providers  should  be  classified  under  the  Communications  Act  when  bundled  with  information 


 1  47  U.  S.  C.    201  &  202  (1996).  We  refer  to  the  Communications  Act  of  1934,  as  amended  by  the 
 Telecommunications  Act  of  1996,  as  the  Communications  Act  or  the  Act. 
 2  For  purposes  of  this  proceeding,  unless  otherwise  indicated,  we  use  the  term  broadband  telecommunications 


 service  or  broadband  service  in  a  very  general  sense  to  describe  a  broad  array  of  high-  speed  telecommunications 
 services.  See  note  37,  infra,  for  further  discussion  of  this  point. 


 3  Review  of  the  Section  251  Unbundling  Obligations  of  Incumbent  Local  Exchange  Carriers,  CC  Docket  No. 


 01-  338,  Implementation  of  the  Local  Competition  Provisions  of  the  Telecommunications  Act  of  1996,  CC  Docket 
 No.  96-  98,  Deployment  of  Wireline  Services  Offering  Advanced  Telecommunications  Capability,  CC  Docket  No. 
 98-  147,  Notice  of  Proposed  Rulemaking,  FCC  01-  361  (adopted  Dec.  12,  2001). 


 4  Performance  Measurements  and  Standards  for  Unbundled  Network  Elements  and  Interconnection,  et  al.,  CC 


 Docket  No.  01-  318,  Notice  of  Proposed  Rulemaking,  FCC  01-  331  (rel.  Nov.  19,  2001)  (UNE  Measurements  and 
 Standards  Notice);  Performance  Measurements  and  Standards  for  Interstate  Special  Access  Services,  et  al.,  CC 
 Docket  No.  01-  321,  Notice  of  Proposed  Rulemaking,  FCC  No.  01-  339  (rel.  Nov.  19,  2001)  (Special  Access 
 Measurements  and  Standards  Notice). 
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 services,  in  particular  whether  such  bundled  offerings  should  be  classified  as  Title  I  services.  5  The 
 present  proceeding  does  not  seek  to  answer  these  definitional  questions  with  respect  to  bundled 
 offerings,  but  instead  focuses  on  the  appropriate  regulation  of  broadband  offerings  that  are 
 regulated  under  Title  II  of  the  Act.  6 


 4.  The  world  of  telecommunications  is  changing  dramatically,  with  broadband 
 services  assuming  an  increasingly  critical  role  in  our  economy  and  our  everyday  lives.  The  basic 
 elements  of  the  existing  regulatory  requirements  for  the  provision  of  broadband  services  by 
 incumbent  LECs  were  initially  developed  in  a  prior  era  of  circuit-  switched,  analog  voice  services 
 characterized  by  a  one-  wire  world  for  access  to  communications.  Historically,  consumers  have 
 only  been  able  to  access  telecommunications  services  through  the  wireline  facilities  installed  by 
 their  local  telephone  company.  Today,  the  services  provided  by  different  communications 
 networks  are  converging,  as  cable  providers,  satellite  providers,  and  terrestrial  wireless  network 
 providers  develop  new  services  that  are  becoming  increasingly  substitutable  for  the  broadband 
 services  provided  over  the  traditional  telephone  network.  7  At  the  same  time,  the  provision  of 
 broadband  services  to  residential  customers  is  a  nascent  market,  and  enormous  new  investment 
 and  innovation  will  be  required  if  we  are  to  realize  the  full  promise  of  broadband  deployment.  As 
 such,  much  is  unknown  about  consumer  demand  for  services  such  as  DSL  and  the  incentive  and 
 ability  of  dominant  carriers  to  exercise  market  power  in  the  broadband  market.  Thus,  we  initiate 
 this  proceeding  to  consider  what  changes,  if  any,  we  should  make  in  our  traditional  regulatory 
 requirements  to  reflect  the  relevant  competitive  landscape  and  create  the  right  incentives  for 
 broadband  services  growth  and  investment. 


 5.  As  discussed  in  more  detail  below,  under  existing  domestic  common  carrier 
 regulation,  incumbent  local  exchange  carriers  are  generally  treated  as  dominant  carriers,  absent  a 
 specific  finding  to  the  contrary  for  a  particular  market.  8  As  dominant  domestic  carriers, 


 5  The  question  of  how  cable  modem  service  should  be  classified  is  the  subject  of  a  separate  on-  going  proceeding 
 and  will  not  be  considered  in  this  forthcoming  proceeding.  See  Inquiry  Concerning  High-  Speed  Access  to  the 
 Internet  over  Cable  and  Other  Facilities,  GN  Docket  No.  00-  185,  Notice  of  Inquiry,  15  FCC  Rcd  19287  (2000) 
 (Cable  Access  Notice). 


 6  Accordingly,  interested  parties  need  not  comment  on  the  appropriate  statutory  classification  of  bundled 


 broadband/  information  services  in  this  proceeding.  Those  issues  will  be  considered  in  the  separate  proceeding 
 described  above. 


 7  Inquiry  Concerning  the  Deployment  of  Advanced  Telecommunications  Services  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,  Second  Report,  15  FCC  Rcd  20913,  20928-  30,  20932-  38,  20952-  54  & 
 20958-  61.  (2000)  (Second  Section  706  Report). 


 8  Our  use  of  the  term  dominant  here  is  limited  to  the  provision  of  domestic  telecommunications  services,  and 


 is  not  intended  to  encompass  findings  of  dominance  related  to  foreign  carrier  affiliation.  The  regulatory  safeguards 
 applicable  to  carriers  that  are  treated  as  dominant  on  particular  international  routes  because  of  an  affiliation  or 
 alliance  with  a  foreign  carrier  with  market  power  are  set  forth  in  section  63.  10  of  the  Commissions  rules,  47 
 C.  F.  R.    63.10.  These  safeguards  differ  from  those  the  Commission  has  imposed  on  carrier  found  to  be  dominant 
 for  other  reasons. 
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 incumbent  LECs  are  subject  to  tariff  filing,  tariff  support  and  pricing  requirements.  9  The  present 
 broadband  services  market  differs  from  the  historic  market  for  the  provision  of  analog  voice 
 services  in  which  traditional  common  carrier  regulation  arose.  In  particular,  the  one-  wire  world 
 for  customer  access  appears  to  no  longer  be  the  norm  in  broadband  services  markets  as  the  result 
 of  the  development  of  intermodal  competition  among  multiple  platforms,  including  DSL,  cable 
 modem  service,  satellite  broadband  service,  and  terrestrial  and  mobile  wireless  services. 


 6.  The  Commission  has  addressed  the  role  of  continued  regulation  as  competition 
 develops  in  other  contexts,  such  as  traditional  long  distance  service.  The  issues  presented  in  this 
 proceeding  are  different  and  more  challenging  than  those  in  the  prior  Commission  proceedings, 
 however.  This  is  due  to  the  fact  that  the  incumbent  LEC  local  exchange  plant  is  used  to  provide 
 services  with  very  different  competitive  characteristics.  For  example,  broadband  services  are 
 often  provided  over  certain  of  the  same  facilities  as  other  local  exchange  and  exchange  access 
 services.  At  the  same  time,  residential  broadband  services,  such  as  DSL,  while  still  a  nascent 
 market,  generally  appear  to  be  subject  to  significant  intermodal  competition,  while  traditional 
 access  services  that  may  be  provided  over  these  same  facilities  are  generally  subject  to  much  less 
 competition. 


 7.  In  this  proceeding,  we  seek  comment  on  the  nature  and  scope  of  the  market  for 
 domestic  broadband  services.  10  We  also  seek  comment  on  the  relevant  market  dynamics   
 including  intermodal  competition  and  the  nascent  stage  of  market  development  for  residential 
 broadband  services    affecting  the  provision  of  domestic  broadband  services.  Finally,  we  request 
 comment  on  the  appropriate  regulatory  requirements  under  Title  II  of  the  Act  for  the  provision  of 
 broadband  services  by  incumbent  LECs  given  current  market  conditions.  In  particular,  we  ask 
 interested  parties  to  address  how  the  Commission  can  best  balance  the  goals  of  encouraging 
 broadband  investment  and  deployment,  fostering  competition  in  the  provision  of  broadband 
 services,  promoting  innovation,  and  eliminating  unnecessary  regulation.  As  part  of  this 
 proceeding,  we  also  invite  comment  on  the  Petition  filed  by  SBC  Communications  on  October  3, 
 2001,  requesting  an  expedited  ruling  that  it  is  non-  dominant  in  the  provision  of  broadband 
 services,  and  asking  the  Commission  to  forbear  from  dominant  carrier  regulation  of  those 
 services.  11 


 9  The  BOCs  are  also  subject  to  certain  Computer  II/  III  obligations  generally  designed  to  ensure  that  competitive 
 information  service  providers  (ISPs)  have  nondiscriminatory  access  to  the  basic  underlying  services  used  in  the 
 provision  of  information  services.  The  continued  need  for  these  requirements  is  currently  being  examined  in  a 
 separate  proceeding.  Computer  III  Further  Remand  Proceedings:  Bell  Operating  Company  Provision  of  Enhanced 
 Services;  1998  Biennial  Review    Review  of  Computer  III  and  ONA  Safeguards  and  Requirements,  CC  Docket 
 Nos.  95-  20  &  98-  10,  Further  Notice  of  Proposed  Rulemaking,  13  FCC  Rcd  6040  (1998);  Further  Comment 
 Requested  to  Update  and  Refresh  Record  on  Computer  III  Requirements,  CC  Docket  Nos.  95-  20  &  98-  10,  Public 
 Notice,  16  FCC  Rcd  5363  (2001). 


 10  This  proceeding  is  not  intended  to  address  the  international  services  market. 


 11  SBC  Petition  For  Expedited  Ruling  That  It  Is  Non-  Dominant  In  Its  Provision  Of  Advanced  Services  And  For 
 Forbearance  From  Dominant  Carrier  Regulation  Of  Those  Services,  filed  Oct.  3,  2001. 
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 II.  BACKGROUND 
 8.  For  most  of  the  twentieth  century,  telephony  was  viewed  as  a  natural  monopoly 
 that  required  regulation.  The  primary  concern  of  regulators  at  that  time  was  to  prevent  incumbent 
 monopolists  from  exploiting  their  market  power  at  the  expense  of  regulated  ratepayers.  12  As 
 competition  was  introduced  into  former  monopoly  markets,  it  was  recognized  that  regulation 
 would  need  to  be  modified  to  account  for  this  introduction  of  competition.  Thus,  the  Commission 
 initiated  a  series  of  proceedings  to  streamline  the  regulation  of  carriers  that  lacked  market  power, 
 and  for  whom  monopoly  regulation  was  unnecessary.  While  the  Commission  initially  focused  its 
 streamlining  efforts  on  new  entrants  that  lacked  individual  market  power,  it  later  moved  to  reduce 
 regulation  of  former  monopoly  carriers  as  competition  eroded  their  market  power.  At  the  same 
 time  that  the  Commission  was  reducing  certain  forms  of  regulation  that  competition  rendered 
 unnecessary,  it  also  recognized  the  need  to  prevent  incumbent  carriers  possessing  market  power 
 in  one  market  from  leveraging  that  market  power  into  a  related,  competitive  or  potentially 
 competitive  market.  Accordingly,  the  Commission  adopted  a  variety  of  competitive  safeguards 
 that  were  intended  to  prevent  such  leveraging.  We  summarize  the  various  regulatory 
 requirements  the  Commission  has  developed  in  the  past  below.  As  discussed  more  fully  in  Section 
 IV,  we  ask  parties  to  comment  on  whether  any  of  the  regulatory  tools  developed  in  these 
 proceedings  has  relevance  for  the  Commissions  regulatory  approach  to  incumbent  LEC-  provided 
 broadband  services. 


 A.  Streamlining  Regulation  of  Firms  in  Increasingly  Competitive  Markets 
 9.  Between  1979  and  1985,  the  Commission  conducted  the  Competitive  Carrier 
 proceeding,  13  which  examined  how  Commission  regulations  should  be  adapted  for  new  firms 


 12  Economists  have  recognized  different  ways  to  exercise  market  power  by  distinguishing  between  Stiglerian 
 market  power,  which  is  the  ability  of  a  firm  profitably  to  raise  and  sustain  its  price  significantly  above  the 
 competitive  level  by  restricting  its  own  output,  and  Bainian  market  power,  which  is  the  ability  of  a  firm 
 profitably  to  raise  and  sustain  its  price  significantly  above  the  competitive  level  by  raising  its  rivals  costs  and 
 thereby  causing  the  rivals  to  restrain  their  output.  See  Regulatory  Treatment  of  LEC  Provision  of  Interexchange 
 Services  Originating  in  the  LECs  Local  Exchange  Area,  12  FCC  Rcd  15756,  15803,  n.  214  (1997)  (LEC 
 Classification  Order). 


 13  Policy  and  Rules  Concerning  Rates  for  Competitive  Common  Carrier  Services  and  Facilities  Authorizations 


 Therefor,  Notice  of  Proposed  Rulemaking,  77  FCC  2d  308  (1979)  (Competitive  Carrier  Notice);  First  Report  and 
 Order,  85  FCC  2d  1  (1980)  (Competitive  Carrier  First  Report  and  Order);  Further  Notice  of  Proposed 
 Rulemaking,  84  FCC  2d  445  (1981);  Second  Further  Notice  of  Proposed  Rulemaking,  47  Red.  Reg.  17,308  (1982); 
 Second  Report  and  Order,  91  FCC  2d  59  (1982),  recon.  denied,  93  FCC  2d  54  (1983);  Third  Further  Notice  of 
 Proposed  Rulemaking,  48  Fed.  Reg.  28,292  (1983);  Third  Report  and  Order,  48  Fed.  Reg.  46,791  (1983);  Fourth 
 Report  and  Order,  95  FCC  2d  554  (1983)  (Competitive  Carrier  Fourth  Report  and  Order),  vacated  AT&  T  v.  FCC, 
 F.  2d  727  (D.  C.  Cir.  1992),  cert.  denied,  MCI  Telecommunications  Corp.  v.  AT&  T,  113  S.  Ct.  3020  (1993);  Fourth 
 Further  Notice  of  Proposed  Rulemaking,  96  FCC  2d  1191  (1984);  Fifth  Report  and  Order,  98  FCC  2d  1191  (1984); 
 Sixth  Report  and  Order,  99  FCC  2d  1020  (1985),  vacated  MCI  Telecommunications  Corp.  v.  FCC,  765  F.  2d  1186 
 (D.  C.  Cir.  1985)  (collectively  referred  to  as  the  Competitive  Carrier  proceeding). 
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 entering  formerly  monopolistic  markets.  14  In  a  series  of  orders,  the  Commission  distinguished  two 
 kinds  of  carriers    those  with  market  power  (dominant  carriers)  and  those  without  market  power 
 (non-  dominant  carriers).  15  The  Commission  sought  to  reduce  regulation  of  new  competitive 
 entrants,  which  it  had  classified  as  non-  dominant,  on  the  ground  that,  because  they  lacked  market 
 power,  they  could  not  impose  the  kinds  of  harms  much  of  existing  regulation  was  intended  to 
 prevent.  Thus,  the  Commission  eliminated  rate  regulation  of  non-  dominant  carriers,  reduced 
 existing  tariff  filing  requirements,  and  lightened  the  section  214  obligations  imposed  on  non-dominant 
 carriers.  16  In  addition,  it  found  that  it  was  unnecessary  to  subject  non-  dominant  carriers 
 to  the  same  accounting  regulations  that  applied  to  dominant  carriers. 


 10.  As  competition  developed  in  the  interstate,  interexchange  market,  the  Commission 
 initiated  the  Interstate  Interexchange  proceeding  to  consider  whether  it  was  in  the  public  interest 
 to  streamline  the  regulation  of  the  sole  dominant  interexchange  carrier,  AT&  T.  17  Based  on  its 
 review,  the  Commission  found  that  certain  services  provided  by  AT&  T  had  become  substantially 
 competitive.  18  Accordingly,  it  streamlined  the  regulation  of  those  services  provided  by  AT&  T. 


 11.  Despite  this  streamlining,  AT&  T  remained  classified  as  a  dominant  carrier  with 
 respect  to  the  interstate  interexchange  market  and  continued  to  be  subject  to  price  cap  regulation 
 for  certain  services,  including  those  provided  to  residential  customers.  Consequently,  AT&  T  in 
 1993  filed  a  motion  seeking  to  be  re-  classified  as  a  non-  dominant  carrier  in  the  interstate, 
 domestic,  interexchange  market  and  to  be  regulated  in  the  same  manner  as  its  competitors.  19  In 


 14  The  primary  focus  of  this  proceeding  was  on  the  so-  called  specialized  common  carriers,  domestic  satellite 
 carriers,  resale  (including  value-  added)  carriers,  and  miscellaneous  common  carriers.  See  Competitive  Carrier 
 Notice,  77  FCC  2d  at  309,  para.  1. 


 15  In  the  Competitive  Carrier  Fourth  Report  and  Order,  the  Commission  defined  market  power  as  the  ability  to 


 raise  prices  by  restricting  output,  and  as  the  ability  to  raise  and  maintain  prices  above  the  competitive  level 
 without  driving  away  so  many  customers  as  to  make  the  increase  unprofitable.  See  Competitive  Carrier  Fourth 
 Report  and  Order,  95  FCC  2d  at  558,  para.  7. 


 16  See  Competitive  Carrier  proceeding. 


 17  Competition  in  the  Interstate  Interexchange  Marketplace,  Notice  of  Proposed  Rulemaking,  5  FCC  Rcd  2627 
 (1990);  Report  and  Order,  6  FCC  Rcd  5880  (1991)  (First  Interexchange  Competition  Order);  Order,  6  FCC  Rcd 
 7255  (1991);  Memorandum  Opinion  and  Order,  6  FCC  Rcd  7569  (1991);  Memorandum  Opinion  and  Order,  7 
 FCC  Rcd  2677  (1992);  Memorandum  Opinion  and  Order  on  Reconsideration,  8  FCC  Rcd  2659  (1993);  Second 
 Report  and  Order,  8  FCC  Rcd  3668  (1993)  (Second  Interexchange  Competition  Order);  Memorandum  Opinion 
 and  Order,  8  FCC  Rcd  5046  (1993);  Memorandum  Opinion  and  Order  on  Reconsideration,  10  FCC  Rcd  4562 
 (1995)  (collectively  referred  to  as  the  Interexchange  Competition  proceeding). 


 18  First  Interexchange  Competition  Order,  6  FCC  Rcd  at  5911,  para.  188  (finding  that  services  in  AT&  Ts 


 Basket  3  under  price  cap  regulation,  other  than  analog  private  line  services,  and  services  outside  of  price  cap 
 regulation,  including  Tariff  12,  were  substantially  competitive);  see  also  Second  Interexchange  Competition 
 Order,  8  FCC  Rcd  at  3668,  para.  1  (replacing  price  cap  regulation  with  further  streamlined  regulation  for  all  of 
 AT&  Ts  Basket  2  services,  except  for  800  directory  assistance). 


 19  Motion  of  AT&  T  Corp.  to  be  Reclassified  as  a  Non-  Dominant  Carrier,  Order,  11  FCC  Rcd  3271,  3283,  para. 


 14  (1995)  (AT&  T  Reclassification  Order). 
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 the  AT&  T  Reclassification  Order,  the  Commission  found  that  AT&  T  no  longer  possessed 
 individual  market  power  in  the  interstate,  interexchange  market,  and  it  accordingly  reclassified 
 AT&  T  as  non-  dominant.  20  Significantly,  the  Commission  also  found  that  continued  dominant 
 carrier  regulation  stifled  AT&  Ts  ability  to  compete,  which  in  turn  could  inhibit  the  growth  of 
 competition  in  the  interstate,  interexchange  market.  21 


 12.  More  recently,  as  competition  in  the  provision  of  interstate  access  services 
 increased,  the  Commission  recognized  that  many  incumbent  LECs  remained  subject  to  significant 
 regulatory  constraints.  Accordingly,  the  Commissions  Pricing  Flexibility  Order  22  granted  pricing 
 flexibility  to  incumbent  LECs  subject  to  price  cap  regulation,  once  certain  competitive  thresholds 
 were  met,  to  increase  their  ability  to  respond  to  competition  in  this  market.  23  The  Pricing 
 Flexibility  Order  designed  a  framework  to  provide  greater  flexibility  to  incumbent  LECs  and  to 
 facilitate  the  removal  of  services  from  price  cap  regulation  as  competition  developed  in  the 
 exchange  access  market,  while  ensuring  that  these  LECs  could  not  use  this  flexibility  to  engage  in 
 anticompetitive  behavior.  24  The  Commission  also  established  a  framework  for  granting  incumbent 
 LECs  subject  to  price  cap  regulation  greater  flexibility  in  the  pricing  of  all  interstate  access 
 services  once  they  satisfied  certain  competitive  criteria.  25 


 B.  Competitive  Safeguards  to  Ensure  Competition  in  Related  Markets 
 13.  With  the  introduction  of  competition  into  former  monopoly  markets,  the 
 Commission  recognized  the  benefits  of  streamlining  regulation  of  carriers  that  lacked  individual 
 market  power.  The  Commission  also  recognized  the  need  to  introduce  new  regulations  to 
 prevent  carriers  possessing  market  power  in  one  market  from  leveraging  that  power  into  a  second 
 competitive  market.  In  a  series  of  proceedings,  the  Commission  considered  and  adopted  a  variety 
 of  these  competitive  safeguards,  including  various  structural  safeguards  (such  as  the  separate 
 subsidiary  requirements  of  Computer  II  and  those  imposed  on  independent  LECs  provision  of 
 interexchange  services),  non-  structural  safeguards  (such  as  those  imposed  in  Computer  III), 
 accounting  safeguards  (including  Part  64  rules  and  the  affiliate  transaction  rules),  and  various 


 20  Id.  at  3347,  para.  140. 
 21  Id.  at  3288,  para.  27. 
 22  Access  Charge  Reform,  Price  Cap  Performance  Review  for  Local  Exchange  Carriers,  Interexchange  Carrier 
 Purchases  of  Switched  Access  Services  Offered  by  Competitive  Local  Exchange  Carriers,  Petition  of  U.  S.  West 
 Communications,  Inc.  for  Forbearance  from  Regulation  as  a  Dominant  Carrier  in  the  Phoenix,  Arizona  MSA,  14 
 FCC  Rcd  14221  (1999)  (Pricing  Flexibility  Order). 


 23  Id.  at  14232-  33,  para.  19.  In  addition,  this  order  granted  immediate  pricing  flexibility  to  price  cap  LECs  in 


 the  form  of  streamlined  introduction  of  new  services,  geographic  deaveraging  of  rates  for  services  in  the  trunking 
 basket,  and  the  removal,  upon  implementation  of  toll  dialing  parity,  of  certain  interstate  interexchange  services 
 from  price  cap  regulation.  See  id.  at  14225,  para.  4. 


 24  Id.  at  para.  3. 


 25  Id.  at  para.  4. 
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 Federal  Communications  Commission  FCC  01-  360 
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 reporting  and  performance  requirements  (such  as  certain  access  service  reports  required  under 
 ARMIS).  These  safeguards  also  had  the  effect  of  allowing  carriers  possessing  market  power  to 
 compete  in  related  competitive  markets  rather  than  being  banned  from  these  markets  altogether. 


 14.  One  of  the  earliest  instances  where  the  Commission  considered  the  need  for 
 competitive  safeguards  was  in  the  Computer  Inquiries.  26  At  that  time,  the  Commission 
 attempted  to  balance  the  benefits  of  having  AT&  T  and  its  Bell  Operating  Companies  (BOCs) 
 participate  in  the  emerging  market  for  enhanced  services  with  the  desire  to  protect  new 
 competitors  from  possible  cross-  subsidization  or  anti-  competitive  behavior  by  the  incumbents 
 using  their  control  over  bottleneck  facilities.  The  Computer  II  and  III  proceedings  sought  to 
 ensure  that  the  BOCs  could  not  use  their  control  over  bottleneck  local  exchange  facilities  to 
 discriminate  against  independent  information  service  providers  (ISPs).  Initially,  as  a  result  of  the 
 Computer  II  proceeding,  the  Commission  subjected  BOC  entry  into  the  information  service 
 market  to  strict  separate  affiliate  requirements.  27  In  Computer  III,  however,  the  Commission 
 offered  an  alternative  set  of  safeguards  to  the  separate  affiliate  requirements  of  Computer  II.  The 
 Computer  III  requirements  included  Open  Network  Architecture  (ONA)  and  Comparably 
 Efficient  Interconnection  (CEI)  requirements.  The  Commission  determined  that  the  costs  of 
 structural  separation  outweighed  the  benefits,  and  that  nonstructural  safeguards  could  protect 
 competitive  ISPs  from  anticompetitive  behavior  by  the  BOCs  while  avoiding  the  inefficiencies 
 associated  with  structural  safeguards.  28  The  Commission  also  required  the  BOCs  to  comply  with 


 26  See,  e.  g.,  Regulatory  and  Policy  Problems  Presented  by  the  Interdependence  of  Computer  and 
 Communication  Services  and  Facilities  (Computer  I),  28  FCC  2d  291  (1970)  (Tentative  Decision);  28  FCC  2d  267 
 (1971)  (Final  Decision). 


 27  Amendment  of  Section  64.702  of  the  Commissions  Rules  and  Regulations  (Computer  II),  77  FCC  2d  384 


 (1980)  (Computer  II  Final  Decision),  recon.,  84  FCC  2d  50  (1980)  (Computer  II  Reconsideration  Order),  further 
 recon.,  88  FCC  2d  512  (1981)  (Computer  II  Further  Reconsideration  Order),  affirmed  sub  nom.  Computer  and 
 Communications  Industry  Assn  v.  FCC,  693  F.  2d  198  (D.  C.  Cir.  1982),  cert.  denied,  461  U.  S.  938  (1983). 
 Initially,  the  separate  affiliate  requirement  applied  to  the  then-  integrated  Bell  System.  However,  following 
 divestiture  of  AT&  T  in  1984,  the  Commission  extended  the  structural  separation  requirements  of  Computer  II  to 
 the  BOCs.  See  United  States  v.  AT&  T,  552  F.  Supp.  131  (D.  D.  C.  1982),  affd  sub  nom.  Maryland  v.  United  States, 
 460  U.  S.  1001  (1983);  Policy  and  Rules  Concerning  the  Furnishing  of  Customer  Premises  Equipment,  Enhanced 
 Services  and  Cellular  Communications  Services  by  the  Bell  Operating  Companies  North  American  Telephone 
 Association  Petition  for  Declaratory  Ruling  on  the  Requirement  for  Sale  of  Customer  Premises  Equipment  by  the 
 Bell  Operating  Companies,  CC  Docket  No.  83-  115,  ENF  83-  5,  Report  And  Order,  95  FCC  2d  1117  (1983). 


 28  Computer  III  Further  Remand  Proceedings:  Bell  Operating  Company  Provision  of  Enhanced  Services  and 


 1998  Biennial  Regulatory  Review    Review  of  Computer  III  and  ONA  Safeguards  and  Requirements,  Report  and 
 Order,  14  FCC  Rcd  4289,  4293-  94,  at  para.  7  (1999)  (Computer  III  Report  and  Order).  The  Commission  initially 
 applied  the  Computer  III  and  ONA  rules  to  both  AT&  T  and  the  BOCs.  Computer  III  Phase  I  Order,  104  FCC  2d 
 958  (1986).  In  subsequent  orders,  the  Commission  first  modified,  and  then  relieved,  AT&  T  of  most  Computer  III 
 and  ONA  requirements.  See,  e.  g.,  Computer  III  Phase  I  Reconsideration  Order,  2  FCC  Rcd  3035  (1987); 
 Competition  in  the  Interstate  Interexchange  Marketplace,  Memorandum  Opinion  and  Order  on  Reconsideration, 
 10  FCC  Rcd  4562  (1995);  see  also  Computer  III  Report  and  Order,  14  FCC  Rcd  at  4294-  95,  para.  8.  ONA  is  the 
 overall  design  of  a  carriers  basic  network  services  to  permit  all  users  of  the  basic  network,  including  the 
 information  services  operations  of  the  carrier  and  its  competitors,  to  interconnect  to  specific  basic  network 
 functions  and  interfaces  on  an  unbundled  and  equal-  access  basis.  The  BOCs  and  GTE  through  ONA  must 
 unbundle  key  components,  or  elements,  of  their  basic  services  and  make  them  available  under  tariff,  regardless  of 
 (continued.) 
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 Federal  Communications  Commission  FCC  01-  360 
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 other  nonstructural  safeguards  regarding  network  disclosure  and  quality,  installation,  and 
 maintenance  reporting.  29  The  related  market,  information  services,  was  and  continues  to  be 
 unregulated,  although  the  Commission  retains  jurisdiction  over  information  services  through  Title 
 I  of  the  Act. 


 15.  Then,  in  1998,  in  response  to  passage  of  the  1996  Act  and  BOC  entry  into  the 
 interLATA  information  services  market,  the  Commission  issued  the  Computer  III  Further  Notice 
 to  address  issues  raised  by  the  interplay  between  the  safeguards  and  terminology  established  in  the 
 1996  Act  and  the  Computer  III  regime.  30  In  the  Computer  III  Further  Notice,  the  Commission 
 observed  that  BOCs  remain  the  dominant  providers  of  local  exchange  and  exchange  access 
 services  in  their  in-  region  states,  and  thus  continue  to  have  the  ability  to  engage  in  anticompetitive 
 behavior  against  competitive  ISPs.  31  The  Commission  noted,  however,  that  the  movement  toward 
 local  exchange  and  exchange  access  competition  should  gradually  decrease  and  eventually 
 eliminate  the  need  for  regulation  of  the  BOCs  to  ensure  that  they  do  not  discriminate  against 
 competitive  ISPs.  32  In  the  1999  Computer  III  Report  and  Order,  the  Commission  concluded  that 
 in  todays  telecommunications  market,  given  the  protection  afforded  by  the  ONA  requirements 
 and  the  1996  Act,  it  should  eliminate  the  requirement  that  BOCs  file  CEI  plans  and  obtain 
 Commission  approval  for  those  plans  prior  to  providing  new  information  services.  33 


 16.  Separate  from  the  Computer  II  and  III  line  of  orders,  in  1996,  the  Commission 
 initiated  a  proceeding  to  examine  how  its  regulations  should  be  adapted  to  acknowledge  the 
 potential  entry  of  BOCs  and  incumbent  LECs  into  the  long  distance  telecommunications  market. 
 Specifically,  in  the  LEC  Classification  Order,  the  Commission  determined  whether  the  BOCs  and 
 independent  incumbent  LECs  should  be  treated  as  dominant  or  non-  dominant  carriers  in  their 
 provision  of  long  distance  services.  34  The  Commission  analyzed  whether  the  BOCs  and  other 


 (Continued  from  previous  page) 
 whether  their  information  services  operations  utilize  the  unbundled  components.  See  Computer  III  Report  and 
 Order,  14  FCC  Rcd  at  4294-  95,  para  8,  n.  17.  The  Commission  has  never  imposed  CEI  requirements  on  GTE  or 
 any  other  independent  LEC.  A  remand  from  the  Court  of  Appeals  for  the  Ninth  Circuit  regarding  the  sufficiency 
 of  ONA  unbundling  as  a  condition  of  lifting  structural  separation  is  pending.  Computer  III  Further  Remand 
 Proceedings:  Bell  Operating  Company  Provision  of  Enhanced  Services;  1998  Biennial  Regulatory  Review   
 Review  of  Computer  III  and  ONA  Safeguards  and  Requirements,  Further  Notice  of  Proposed  Rulemaking,  13  FCC 
 Rcd  6040,  6051-  52,  paras.  15-  16  (1998)  (Computer  III  Further  Notice). 


 29  Computer  III  Phase  I  Order,  104  FCC  2d  at  1080-  86,  1089-  91,  paras.  246-  55,  260-  65;  Computer  III  Phase  II 


 Order,  2  FCC  Rcd  at  3084-  86,  paras.  88-  98. 
 30  Computer  III  Report  and  Order,  14  FCC  Rcd  at  4291,  para.  3,  n.  5. 


 31  Computer  III  Further  Notice,  13  FCC  Rcd  at  6072,  para.  51. 
 32  Id. 
 33  Computer  III  Report  and  Order,  14  FCC  Rcd  at  4292,  para.  4  (BOCs  are  now  only  required  to  post  their  CEI 
 plans  and  plan  amendments  on  their  Internet  sites,  and  to  notify  the  Commission  upon  posting);  see  also  Computer 
 III  Further  Notice,  13  FCC  Rcd  at  6077-  78,  para.  61-  62. 


 34  LEC  Classification  Order,  12  FCC  Rcd  15756  (1997).  In  particular,  the  1996  Act  significantly  altered  the 


 legal  and  regulatory  requirements  governing  the  local  exchange  marketplace.  Among  other  things,  the  1996  Act 
 (continued.) 
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 incumbent  LECs  monopoly  positions  in  the  local  exchange  and  exchange  access  markets,  along 
 with  their  control  of  bottleneck  facilities,  should  subject  them  to  dominant  carrier  regulation  in  the 
 related  long  distance  market,  which  was  competitive  and  substantially  deregulated.  After 
 engaging  in  a  market  power  analysis,  the  Commission  concluded  that,  upon  entry,  the  BOCs  and 
 other  incumbent  LECs  would  be  unlikely  to  have  sufficient  market  shares  to  allow  them  to 
 profitably  raise  and  maintain  prices  above  competitive  levels  in  the  long  distance  market.  The 
 Commission  further  concluded  that  the  competitive  safeguards  imposed  on  the  BOCs  and  other 
 incumbent  LECs,  including  separate  affiliate  requirements,  35  made  it  unlikely  that  the  BOCs  and 
 other  incumbent  LECs  could  engage  in  anti-  competitive  behavior  to  such  an  extent  that  they 
 could  gain  individual  market  power  in  the  interexchange  market.  Therefore,  the  Commission 
 determined  that  BOC  affiliates  and  independent  incumbent  LEC  affiliates  should  be  classified  as 
 non-  dominant  in  the  provision  of  in-  region,  interstate,  domestic,  long  distance  services.  36 


 III.  IDENTIFICATION  OF  INCUMBENT  LEC-  PROVIDED  BROADBAND 
 SERVICES  MARKETS 


 17.  The  first  step  in  assessing  what  regulatory  requirements  are  appropriate  for 
 incumbent  LEC-  provided  broadband  services  is  to  define  and  analyze  the  relevant  markets  in 
 which  incumbent  LECs  provide  these  services.  37  Consistent  with  Commission  precedent,  our 
 regulatory  response  should  be  guided  by  a  full  understanding  of  the  existing  market  dynamics  for 
 broadband  services.  38  We  begin  our  analysis  by  asking  questions  about  the  relevant  product  and  (Continued  from  previous  page) 


 allowed  the  BOCs,  under  certain  conditions,  to  enter  markets  from  which  they  previously  were  restricted,  including 
 the  interLATA  telecommunications  and  interLATA  information  services  markets.  However,  the  services  offered  in 
 these  markets  relied  on  incumbent-  controlled  facilities  where  the  incumbent  had,  or  may  have  had,  market  power, 
 and  the  potential  for  leveraging  this  market  power  was  of  concern. 


 35  See  47  U.  S.  C.  272;  47  C.  F.  R.    64.1903.  The  Commission  recently  sought  comment  on  whether  the  separate 


 affiliate  requirements  for  incumbent  LECs  continue  to  serve  the  public  interest.  See  2000  Biennial  Regulatory 
 Review  Separate  Affiliate  Requirements  of  Section  64.1903  of  the  Commissions  Rules,  CC  Docket  No.  00-  175, 
 Notice  of  Proposed  Rulemaking,  FCC  No.  01-  261,  16  FCC  Rcd  __,  2001  WL  1078734,  at  para.  8.  (rel.  Jul.  14, 
 2001). 


 36  LEC  Classification  Order,  12  FCC  Rcd  at  15762-  63,  paras.  6-  7. 


 37  Although  we  are  cognizant  that  the  term  broadband  services  has  been  used  in  common  parlance  to  identify, 
 rather  than  precisely  define,  those  services  that  at  their  most  basic  level  allow  users  to  send  and  receive  large 
 amounts  of  information,  we  purposely  use  the  term  here  to  avoid  pre-  judging  which  services  belong  in  the  same 
 product  markets.  By  using  the  term  broadband  services,  we  intend  to  avoid  addressing  statutory-  based  definitional 
 issues  and  instead  focus  on  addressing  the  relevant  markets  in  which  these  services  participate.  We  will  be 
 addressing  the  definitional  issues  in  the  forthcoming  Title  I  broadband  proceeding,  described  at  para.  3,  above. 


 38  As  competition  develops,  the  Commission  has  moved  from  adopting  prescriptive  regulations  to  relying  on 


 market  forces  to  promote  the  public  interest.  See,  e.  g.,  Multi-  Association  Group  (MAG)  Plan  For  Regulation  Of 
 Interstate  Services  Of  Non-  Price  Cap  Incumbent  Local  Exchange  Carriers  and  Interexchange  Carriers,  Second 
 Report  and  Order  and  Further  Notice  of  Proposed  Rulemaking  in  CC  Docket  No.  00-  256,  Fifteenth  Report  and 
 Order  in  CC  Docket  No.  96-  45,  and  Report  and  Order  in  CC  Docket  Nos.  98-  77  and  98-  166,  16  FCC  Rcd  __,  2001 
 WL  1381097,  para.  187  (rel.  Nov.  8,  2001)  (MAG  Plan  Order)  (noting  the  Commissions  policy  of  progressively 
 deregulating  interexchange  carriers  when  they  lack  market  power  and  concluding  that,  rather  than  adopt  new 
 regulatory  measures,  the  Commission  should  rely  on  competition  to  ensure  that  consumers  realize  benefits  from 
 (continued.) 
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 Federal  Communications  Commission  FCC  01-  360 
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 geographic  markets  for  incumbent  LEC-  provided  broadband  services.  39  We  then  analyze  what,  if 
 any,  market  power  the  incumbent  LECs  may  possess  in  the  relevant  markets  for  broadband 
 services.  40 


 A.  Relevant  Product  Market 
 18.  We  initially  ask  parties  to  identify  the  relevant  product  markets  that  include 
 incumbent  LEC-  provided  broadband  services.  41  While  we  recognize  that  parties  identification  of 
 the  relevant  product  markets  may  vary  depending  on  the  definition  of  broadband  services,  our 
 goal  is  to  rigorously  define  the  relevant  markets  so  as  to  include  all  reasonably  substitutable 
 services.  In  proposing  relevant  product  markets,  we  ask  parties  to  identify  not  only  which  services 
 to  include  within  a  particular  product  market,  but  also  which  customer  classes  to  include  within  a 


 (Continued  from  previous  page) 
 the  access  charge  reforms  we  adopt  in  this  Order);  Reform  of  Access  Charges  Imposed  by  Competitive  Local 
 Exchange  Carriers,  Seventh  Report  and  Order  and  Further  Notice  of  Proposed  Rulemaking,  CC  Docket  No.  96- 
 262,  16  FCC  Rcd.  9923,  9926-  30,  paras.  8-  18  (2001)  (noting  that  one  of  the  Commissions  overarching  goals  in 
 access  charge  reform  includes  implementing  deregulation  as  competition  develops  and  discussing  relevant 
 decisions)  (citations  omitted);  Pricing  Flexibility  Order,  14  FCC  Rcd  at  14243-  44,  para.  45  (deregulating  the  price 
 cap  LECs  corridor  and  interstate  intraLATA  toll  services  after  finding  that  full  implementation  of  inter-  and 
 intraLATA  toll  dialing  parity  would  generate  sufficient  competition  to  preclude  the  price  cap  LECs  from 
 exploiting  over  a  sustained  period  any  individual  market  power  they  may  have  with  respect  to  these  services); 
 Policy  and  Rules  Concerning  The  Interstate,  Interexchange  Marketplace,  Second  Report  and  Order,  11  FCC  Rcd 
 20730,  20733,  para.  4  (1996)  (detariffing  long  distance  services  based  on  the  principle  that  market  forces  will 
 generally  ensure  that  rates  remain  reasonable  and  that  carriers  have  the  same  incentives  and  rewards  that  firms  in 
 other  competitive  markets  confront);  see  also  Preamble  of  Telecommunications  Act  of  1996,  Pub.  L.  104-  104,  110 
 Stat.  56  (1996)  (directing  Commission  .  .  .  to  promote  competition  and  reduce  regulation  in  order  to  secure  lower 
 prices  and  higher  quality  services  for  American  telecommunications  consumers  and  encourage  the  rapid 
 deployment  of  new  telecommunications  technologies). 


 39  See,  e.  g.,  LEC  Classification  Order,  12  FCC  Rcd  at  15768-  69,  para.  16  (  In  order  to  determine  that  a 


 particular  carrier  or  group  of  carriers  possesses  market  power,  it  is  first  necessary  to  define  the  relevant  product 
 and  geographic  markets);  AT&  T  Reclassification  Order,  11  FCC  Rcd  at  3285,  para.  19  (to  determine  whether  a 
 carrier  has  market  power  one  must  first  identify  the  relevant  product  and  geographic  markets). 


 40  See,  e.  g.,  LEC  Classification  Order,  12  FCC  Rcd  at  15802,  para.  82  (  In  order  to  reclassify  the  BOC 


 interLATA  affiliates  as  non-  dominant,  our  rules  require  us  to  conclude  that  they  will  not  possess  market  power  in 
 the  provision  of  those  interLATA  services  in  the  relevant  product  and  geographic  markets.);  AT&  T 
 Reclassification  Order,  11  FCC  Rcd  at  3285,  para.  19  (to  reclassify  AT&  T  as  non-  dominant,  one  must  first  assess 
 whether  AT&  T  has  market  power  in  the  relevant  markets). 


 41  See  generally  LEC  Classification  Order,  12  FCC  Rcd  at  15768-  15801,  paras.  16-  80. 
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 Federal  Communications  Commission  FCC  01-  360 
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 relevant  product  market.  42  We  ask  the  parties  to  support  their  proposed  relevant  product 
 definitions  with  reliable  empirical  data.  43 


 19.  In  discussing  the  relevant  product  markets  for  broadband  services,  we  ask 
 commenters  to  consider  not  only  broadband  services  provided  over  local  telephone  networks,  but 
 also  broadband  services  offered  over  other  platforms,  such  as  cable,  wireless,  and  satellite. 
 Specifically,  we  seek  comment  on  the  willingness  and  ability  of  end  users  to  purchase  other 
 broadband  services  as  substitutes  for  an  incumbent  LECs  broadband  services.  44  In  this  regard, 
 we  also  ask  parties  to  discuss  whether  significant  price  differentials  between  services  imply  that 
 the  services  are  in  different  product  markets. 


 20.  Traditionally,  the  Commission  has  identified  two  broad  categories  of  markets  for 
 telecommunications  services:  (1)  the  mass  market,  comprised  primarily  of  residential  users;  and 
 (2)  the  larger  business  market,  comprised  of  medium  and  large  business  users.  45  In  identifying 
 these  markets,  the  Commission  has  distinguished  mass-  market  consumers  from  larger  business 
 customers  because  the  services  offered  to  one  group  may  not  be  adequate  or  feasible  substitutes 
 for  services  offered  to  the  other.  46  We  seek  comment  concerning  whether  these  two  broad  market 


 42  For  example,  in  analyzing  the  relevant  product  markets  for  long-  distance  services,  the  Commission  has 
 identified  separate  product  markets  for  mass-  market  consumers  and  for  medium  and  large  business  customers. 
 See  Application  of  WorldCom,  Inc.  and  MCI  Communications  Corp.  for  Transfer  of  Control  of  MCI 
 Communications  Corp.  to  WorldCom,  Inc.,  13  FCC  Rcd  18025,  18040-  18042,  paras.  24-  29  (1998) 
 (WorldCom/  MCI  Merger  Order). 


 43  Such  data  may  include  econometric  estimates  of  cross  elasticity  of  demand  or  marketing  studies  that  show 


 consumer  substitutability  of  demand  for  competing  services. 
 44  LEC  Classification  Order,  12  FCC  Rcd  at  15782,  para.  41  n.  119  ([  I]  n  defining  the  relevant  product  market, 


 one  must  examine  whether  a  small  but  significant  and  non-  transitory  increase  in  the  price  of  the  relevant  product 
 would  cause  enough  buyers  to  shift  their  purchases  to  a  second  product,  so  as  to  make  the  price  increase 
 unprofitable.  If  so,  the  two  products  should  be  considered  in  the  same  product  market)  (citation  omitted);  id.  at 
 15782,  para.  41  (  our  new  approach  will  rely  exclusively  on  demand  considerations  to  define  the  relevant  product 
 market,  rather  than  supply  substitutability);  see  also,  e.  g.,  AT&  T  Reclassification  Order,  11  FCC  Rcd  at  3274, 
 para.  5  (listing  various  factors  relevant  to  market  power,  including  the  number  size  and  distribution  of  competing 
 firms,  the  nature  of  barriers  to  entry,  [  ]  the  availability  of  reasonably  substitutable  services,  and  whether  the  firm 
 controlled  bottleneck  facilities)  (citations  and  internal  quotations  omitted);  Competitive  Carrier  First  Report  and 
 Order,  85  FCC  2d  at  21,  paras.  56-  57  (  we  define  a  dominant  carrier  as  a  carrier  that  possesses  market  power, 
 which  refers  to  the  control  a  firm  can  exercise  in  setting  the  price  of  its  output). 


 45  See,  e.  g.,  WorldCom/  MCI  Merger  Order,  13  FCC  Rcd  at  18040-  41,  paras.  26-  27  (identifying  the  mass  market 


 and  the  larger  business  market  as  the  two  relevant  product  markets  for  long  distance  services  and  determining  that 
 no  additional  relevant  product  markets  existed  because  the  record  contained  insufficient  information  on  cross-elasticities 
 of  demand  and,  more  importantly,  because  owners  of  transmission  capacity  provide  all  the  same 
 services,  and  production  substitution  among  these  services  is  nearly  universal.)  (citations  and  internal  quotations 
 omitted). 


 46  See  Application  of  GTE  Corp.,  Transferor,  and  Bell  Atlantic  Corp.,  Transferee,  For  Consent  to  Transfer 


 Control,  CC  Docket  No.  98-  184,  Memorandum  Opinion  and  Order,  15  FCC  Rcd  14032,  14088-  89,  para.  102  & 
 n.  253  (Bell  Atlantic/  GTE  Merger  Order)  (citing  Application  of  Ameritech  Corp.  and  SBC  Communications,  Inc. 
 for  Transfer  of  Control  of  Corporations  Holding  Commission  Licenses  and  Lines,  CC  Docket  No.  98-  141, 
 (continued.) 
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 categories  are  appropriate  for  incumbent  LEC-  provided  broadband  services.  47  Commenters 
 should  provide  any  relevant  data  to  demonstrate  the  existence  of  a  separate  mass  market  and 
 larger  business  product  market. 


 21.  We  note  that  SBC  contends  in  its  petition  that  two  separate  relevant  product 
 markets  for  broadband  services  exist    one  for  mass-  market  customers  and  another  for  larger 
 business  users.  SBC  further  contends  that  four  different  service  platforms  exhibit  sufficient 
 substitutability  to  be  included  within  the  mass  market  for  broadband  services    xDSL,  cable 
 modem,  satellite  and  fixed  wireless  services.  48  We  seek  comment  on  SBCs  proposal,  and  on  the 
 extent  to  which  any  other  platform,  such  as  mobile  wireless  services,  should  also  be  considered  an 
 actual  or  potential  source  of  intermodal  competition.  To  the  extent  that  parties  identify  a  separate 
 product  market  for  mass-  market  broadband  services,  moreover,  we  seek  comment  on  the  degree 
 of  substitution  among  these  platforms  and  on  SBCs  conclusion  that  broadband  services  for  the 
 mass  market  represent  a  discrete  product  market  and  .  .  .  DSL  and  cable  modem  services  are  both 
 part  of  the  same  product  market.  49 


 22.  Similarly,  we  seek  comment  on  whether  there  is  a  larger  business  market  for 
 broadband  services  in  which  the  following  services  all  fall  within  the  same  product  market:  Frame 
 Relay;  50  Asynchronous  Transfer  Mode  (ATM);  51  Gigabit  Ethernet  (GigE);  52  Switched 


 (Continued  from  previous  page) 
 Memorandum  Opinion  and  Order,  14  FCC  Rcd  14712,  14746,  para  68  and  n.  146  (SBC/  Ameritech  Merger  Order); 
 WorldCom/  MCI  Order,  13  FCC  Rcd  at  18119,  para.  164;  Application  of  NYNEX  Corp.,  Transferor,  and  Bell 
 Atlantic  Corp.,  Transferee,  For  Consent  to  Transfer  Control  of  NYNEX  Corp.  and  its  Subsidiaries,  Memorandum 
 Opinion  and  Order,  12  FCC  Rcd  19985,  20016,  para.  53  (1997)  (Bell  Atlantic/  NYNEX  Merger  Order)). 


 47  SBC  Petition  at  19,  28,  and  34. 


 48  Id.  at  21. 
 49  Id.  at  22-  23  (citations  omitted). 
 50  Frame  Relay  is  a  high-  speed  packet-  switched  technology  used  to  communicate  digital  data  between,  among 
 other  things,  geographically  dispersed  local  area  networks.  Independent  Data  Communications  Manufacturers 
 Association,  Inc.,  Memorandum  Opinion  and  Order,  10  FCC  Rcd  13717,  13720,  para.  6  (1995)  (Frame  Relay 
 Order).  For  a  discussion  of  frame-  relay  technology,  see  id.  at  13720-  21,  paras.  6-  8. 


 51  ATM  is  a  high  bandwidth,  low-  delay,  connection-  oriented  packet-  like  switching  and  multiplexing  technique 


 in  which  [  u]  sable  capacity  is  segmented  into  53-  byte  fixed-  sized  cells,  consisting  of  header  and  information  fields 
 [and]  allocated  to  services  on  demand.  See  Harry  Newton,  Newtons  Telecom  Dictionary:  The  Official  Dictionary 
 of  Telecommunications  and  the  Internet  63  (17  th  ed.  2001)  (Newtons  Telecom  Dictionary). 


 52  Ethernet  is  a  collection  of  standards  for  exchanging  information  over  computer  networks.  Of  the  three  basic 


 functional  layers  of  data  transmission,  Ethernet  defines  the  physical  and  datalink  layers  and  works  with  other 
 standards,  such  as  Internet  protocol  (IP),  to  transmit  data  from  sender  to  recipient.  A  relatively  new,  high-  speed 
 version  of  Ethernet,  GigE,  supports  data  rates  up  to  1  gigabit  per  second  (Gbps),  which  is  equivalent  to  1000 
 megabits  per  second  (Mbps)).  See  J.  P.  Morgan  Securities,  Inc.  &  McKinsey  &  Company,  Inc.,  Broadband  2001:  A 
 Comprehensive  Analysis  of  Demand,  Supply,  Economics,  and  Industry  Dynamics  in  the  U.  S.  Broadband  Market 
 123  (April  2,  2001)  (Broadband  Analysis). 
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 Multimegabit  Data  Service  (SMDS);  53  and  Remote  Local  Area  Network  (RLAN)  service.  54 
 According  to  SBC,  customers  and  service  providers  view  these  services  in  this  proposed  market 
 as  interchangeable,  and  services  are  generally  priced  at  similar  levels.  55  We  seek  comment  on 
 SBCs  proposed  identification  of  a  larger  business  market  for  broadband  services.  We  note  that 
 we  are  not  considering  whether  traditional  special  access  services  belong  in  the  larger-  business 
 market  for  advanced  services  as  these  services  are  governed  by  the  Commissions  pricing 
 flexibility  regime.  56 


 23.  We  also  seek  comment  on  whether  separate  product  markets  for  mass-  market 
 customers  and  larger  business  customers  are  overly  broad  and  should  be  segmented  further.  We 
 seek  comment  on  whether  the  broadband  services  that  are  marketed  to  small  and  medium 
 enterprises  (SMEs)  57  and  to  small  or  home  offices  (SOHOs)  58  constitute  separate  product  markets 
 that  should  not  be  aggregated  into  the  same  grouping  as  the  mass-  market  or  larger  business 
 market.  We  seek  comment  on  the  peculiar  customer  needs  and  carrier  limitations  that  might  make 
 the  SME  or  SOHO  markets  distinct  from  other  relevant  product  markets.  Consistent  with  the 
 analysis  the  Commission  has  applied  in  prior  orders,  parties  recommending  that  particular  services 
 be  grouped  in  one  of  many  narrower  relevant  product  markets  should  substantiate  this  contention 
 with  reliable  empirical  evidence.  59 


 24.  We  also  seek  comment  on  whether,  within  the  general  product  markets  for  large 
 and  medium  business  customers,  on  the  one  hand,  and  mass-  market  customers,  on  the  other,  we 
 should  distinguish  between  retail  markets  and  wholesale  markets.  That  is,  should  broadband 


 53  SMDS  is  a  connectionless  high-  speed  data  transmission  service  intended  for  application  in  a  Metropolitan 
 Area  Network  that  comprises  a  public  network  designed  for  LAN-  to-  LAN  interconnection.  See,  e.  g.,  Newtons 
 Telecom  Dictionary  632. 


 54  RLAN  is  an  xDSL  offering  designed  for  business  customers  that  allows  a  remotely  located  employee  to  access 


 a  corporate  local  area  network  (LAN).  See  SBC  Petition  at  29  n.  73. 
 55  Id.  at  31-  34. 


 56  See  generally  Pricing  Flexibility  Order,  14  FCC  Rcd  14221. 
 57  SMEs  are  typically  defined  as  having  between  one  and  500  employees  and  encompass  a  heterogeneous  group 
 of  small  entrepreneurs,  such  as  florists,  dry  cleaners  and  gas  stations,  to  multi-  location  enterprises  that  employ 
 hundreds  of  people.  See,  e.  g.,  Broadband  Analysis  at  89. 


 58  SOHOs  are  typically  defined  as  businesses  with  fewer  than  five  employees.  See  Small  Business 


 Administration,  Small  Business  Expansions  in  Electronic  Commerce:  A  Look  at  How  Small  Firms  Are  Helping 
 Shape  the  Fastest  Growing  Segments  of  E-  Commerce  (June  2000),  available  at 
 http://  www.  sba.  gov/  ADVO/  stats/  e_  comm2.  pdf. 


 59  See  Implementation  of  the  Non-  Accounting  Safeguards  of  Sections  271  and  272  of  the  Communications  Act  of 


 1934,  as  amended;  and  Regulatory  Treatment  of  LEC  Provision  of  Interexchange  Services  Originating  in  the 
 LEC's  Local  Exchange  Area,  Notice  of  Proposed  Rulemaking,  CC  Docket  No.  96-  149,  11  FCC  Rcd  18877,  18934- 
 35,  para.  119  (1996)  (Non-  Accounting  Safeguards  Notice);  see  also,  e.  g.,  LEC  Classification  Order,  12  FCC  Rcd 
 at  15784,  para.  44  (noting  that  credible  evidence  should  include  information  sufficient  to  identify  services  that 
 are  likely  substitutes  and  the  carrier  or  group  of  carriers  that  allegedly  possesses  market  power). 
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 services  that  are  sold  directly  to  end-  user  customers  be  considered  separate  relevant  products 
 from  broadband  services  that  are  sold  as  inputs  to  other  firms  that  offer  services  to  end-  user 
 customers?  In  addition,  with  respect  to  retail  services  sold  to  mass-  market  end-  user  customers, 
 we  seek  comment  on  whether  we  should  separately  define  relevant  product  markets  for 
 broadband  services  sold  on  a  stand-  alone  basis  and  for  those  sold  as  part  of  bundled  service 
 packages.  For  example,  should  xDSL-  based  telecommunications  services  that  are  sold  on  a 
 stand-  alone  basis  be  placed  in  a  separate  relevant  product  market  from  a  bundled  service  package 
 that  includes  xDSL,  internet  access,  and  possibly  customer  premises  equipment  (such  as  an  xDSL 
 modem)? 


 25.  When  commenting  on  the  appropriate  product  markets  for  broadband  services, 
 parties  should  address  not  only  those  services  that  are  provided  over  telephone  networks,  but  also 
 any  intermodal  competition  for  broadband  services.  60  Commenters  should  address  the  extent  to 
 which  different  intermodal  competitors  compete  in  each  identified  product  market.  To  what 
 extent  do  these  intermodal  competitors  share  common  ownership  with  incumbent  LECs,  and  what 
 effect  should  this  have  on  our  analysis? 


 26.  In  addition,  parties  should  consider  the  extent  to  which  residential  customers  might 
 view  narrowband  services  as  a  substitute  for  broadband  services  and  the  extent  to  which 
 residential  customers  might  substitute  lower-  speed,  circuit-  switched  services  as  substitutes  for 
 higher-  speed  broadband  services.  We  seek  comment  on  whether  the  relevant  product  market, 
 from  the  consumers  perspective,  is  actually  broader  than  our  definition  of  broadband  services. 
 Specifically,  we  seek  comment  on  whether  the  cross-  elasticity  of  demand  between  narrowband 
 and  broadband  services  for  residential  consumers  is  sufficiently  high  that  narrowband  services  will 
 constrain  any  supra-  competitive  pricing  by  broadband  service  providers.  We  note  that  the 
 Commission  has  previously  identified  the  high-  speed  access  product  market  as  separate  from  the 
 low-  speed  market.  61  Thus,  we  seek  comment  on  whether  we  should  reconsider  this  conclusion 
 for  purposes  of  this  proceeding.  In  addition,  we  seek  comment  on  the  operational,  functional  and 
 other  differences  that  might  prevent  low-  speed  access  from  acting  as  a  substitute  for  high-  speed 
 access,  and  on  the  degree  of  interchangeability  that  we  should  consider  relevant  to  establishing 
 separate  product  markets.  Alternatively,  if  the  broadband  services  provided  by  an  incumbent  LEC 
 are  sold  solely  in  conjunction  with  the  LECs  traditional  voice  service  offering,  would  this  inhibit 
 our  ability  to  define  a  discrete  broadband  services  product  market? 


 60  In  this  context,  we  refer  to  intramodal  competitors  as  those  competitive  providers  whose  services  are  either 
 delivered  partially  or  wholly  over  incumbent  LEC  facilities,  or  over  platforms  using  the  same  or  similar  technology 
 that  the  incumbent  LEC  has  deployed.  Intermodal  competitors  are  competitive  providers  that  rely  exclusively  on 
 alternative  technological  platforms  than  those  deployed  by  incumbent  LECs  to  deliver  similar  services. 


 61  See  Applications  for  Consent  to  the  Transfer  of  Control  of  Licenses  and  Section  214  Authorizations  by  Time 


 Warner  Inc.  and  America  Online,  Inc.,  Transferors,  to  AOL  Time  Warner  Inc.,  Transferee,  CS  Docket  00-  30, 
 Memorandum  Opinion  &  Order,  16  FCC  Rcd  6547,  6568-  78  paras.  53-  74  (AOL-  Time  Warner  Merger  Order). 
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 B.  Relevant  Geographic  Market 
 27.  We  seek  comment  on  the  appropriate  geographic  market  for  each  of  the  relevant 
 product  markets  for  broadband  services.  We  note  that  the  Commission  has  previously  identified 
 the  geographic  scope  of  the  relevant  market  for  some  broadband  services  as  local.  62  SBC,  in 
 contrast,  claims  that  the  relevant  geographic  market  for  broadband  services  is  the  incumbent 
 LECs  service  area.  63  We  further  note  that,  in  the  WorldCom/  MCI  Merger  Order,  the 
 Commission  stated  that  it  would  include  within  the  same  relevant  geographic  market  all  customers 
 facing  similar  competitive  choices.  64  We  ask  whether  it  would  be  appropriate  to  use  the  latter 
 (customer  aggregation)  market  definition  in  this  proceeding.  To  the  extent  commenters  contend 
 that  using  the  customer  aggregation  definition  is  appropriate,  we  ask  parties  to  comment  on  the 
 alternative  geographic  market  definitions  discussed  above,  or  to  propose  alternative  geographic 
 markets.  Commenters  should  specifically  address  the  degree  of  geographic  overlap  that  might 
 exist  among  all  intramodal  and  intermodal  competitors. 


 C.  Market  Power  Analysis 
 28.  Within  each  relevant  product  and  geographic  market,  we  seek  comment  on 
 whether  the  incumbent  LECs  possess  individual  market  power  and  are  likely  to  be  able  to  exercise 
 such  power.  We  note  that  the  Commission  has  recognized  that  a  carrier  can  profitably  raise  and 
 sustain  prices  above  competitive  levels  and  thereby  exercise  market  power  in  two  ways.  65  First,  a 
 carrier  may  be  able  to  raise  prices  by  restricting  its  own  output,  which  usually  requires  a  large 
 market  share.  66  Second,  a  carrier  may  be  able  to  raise  prices  by  increasing  its  rivals  costs  or  by 
 restricting  its  rivals  output  through  the  carrier's  control  of  an  essential  input,  such  as  access  to 
 bottleneck  facilities,  that  its  rivals  need  to  offer  their  services.  67  In  assessing  the  first  type  of 
 market  power,  the  Commission  traditionally  has  focused  on  certain  well-  established  market 
 features,  including  market  share,  supply  and  demand  substitutability,  the  cost  structure,  size,  and 


 62  Id.  at  6578,  para.  74. 
 63  SBC  Petition  at  34. 
 64  WorldCom/  MCI  Merger  Order,  13  FCC  Rcd  at  18042-  43,  paras.  30-  31;  see  also,  e.  g.,  LEC  Classification 
 Order,  12  FCC  Rcd  at  15793-  94,  paras.  65-  66  (finding  point-  to-  point  geographic  markets  for  interstate  long-distance 
 calling,  but  treating  the  point-  to-  point  markets  as  a  single  national  geographic  market  unless  there  is 
 credible  evidence  indicating  that  there  is  or  could  be  a  lack  of  competition  in  a  particular  point-  to-  point  market, 
 and  there  is  a  showing  that  geographic  rate  averaging  will  not  sufficiently  mitigate  the  exercise  of  market  power). 


 65  As  in  previous  orders,  we  refer  in  the  following  discussion  to  a  carriers  ability  to  engage  in  such  a  strategy 


 generally  as  the  ability  to  raise  prices.  See,  e.  g.,  LEC  Classification  Order,  12  FCC  Rcd  at  15803,  n.  213. 
 66  Id.  at  15802-  03,  para.  83.  The  Commission  has  termed  this  type  of  market  power  Stiglerian  market  power. 


 See  id.  at  n.  214  (citation  omitted). 
 67  Id.  at  15802-  03,  para.  83.  The  Commission  has  termed  this  type  of  market  power  Bainian  market  power. 


 See  id.  at  n.  214  (citation  omitted). 
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 resources  of  the  firm.  68  We  ask  commenters  to  analyze  the  incumbent  LECs  market  position  in 
 each  relevant  broadband  services  market  according  to  these  indicia.  69 


 29.  With  respect  to  the  second  type  of  market  power,  the  Commission  has  focused  on 
 the  incumbent  LECs  ability  to  exercise  market  power  through  its  control  of  local  bottleneck 
 facilities.  Accordingly,  we  seek  comment  on  the  extent  to  which  an  incumbent  LEC  could 
 leverage  market  power  from  the  local  exchange  and  exchange  access  markets  into  the  markets  for 
 broadband  services.  High  initial  investment,  economies  of  scale,  access  to  customers,  and  the 
 monopoly  legacy  of  the  telecommunications  networks  all  contribute  to  incumbent  LEC  market 
 power  in  the  local  exchange  and  exchange  access  market.  The  Commission  previously  has  found 
 that  an  incumbent  LEC  might  improperly  exercise  its  existing  market  power  through  cross-subsidization, 
 raising  its  rivals  costs,  or  improper  discrimination.  70  In  this  proceeding,  we  seek 
 comment  on  the  extent  to  which  incumbent  LECs  have  the  ability  and  incentive  to  use  their 
 market  power  in  the  local  exchange  and  exchange  access  markets  to  unfairly  disadvantage  rival 
 suppliers  of  broadband  services  in  any  way,  including  charging  higher  prices  to  rivals  for  essential 
 inputs,  providing  rivals  with  poorer  quality  interconnection,  imposing  unnecessary  delays,  or 
 discriminating  against  rivals  inappropriately  in  other  ways.  71  More  specifically,  we  seek  comment 
 on  whether  incumbent  LECs  possess  market  power  with  respect  to  certain  inputs,  such  as  special 


 68  AT&  T  Reclassification  Order,  11  FCC  Rcd  at  3293-  94,  para.  38;  Competitive  Carrier  First  Report  and  Order, 
 85  FCC  2d  at  21,  para.  57. 
 69  Commenters  should  use  prior  Commission  orders  as  their  guides  for  relevant  factors  in  our  analysis.  In 


 determining  whether  a  firm  possesses  market  power,  the  Commission  previously  has  focused  on  factors  such  as 
 market  share,  supply  and  demand  elasticity,  entry  barriers,  potential  competition,  the  cost  structure,  size,  or 
 resources  of  the  firm,  and  control  of  bottleneck  facilities.  See  AT&  T  Reclassification  Order,  11  FCC  Rcd  at  3346- 
 47,  para.  139  (concluding  that  AT&  T  lacked  market  power  after  examining  factors  such  as  supply  elasticity, 
 demand  elasticity,  market  share,  trends  in  market  share  and  other  indicia  of  market  conduct  and  performance, 
 including  price  levels  and  trends  in  prices  over  time);  Competitive  Carrier  First  Report  and  Order,  85  FCC  2d  at 
 21,  para.  57. 


 70  See,  e.  g.,  SBC/  Ameritech  Merger  Order,  14  FCC  Rcd  at  14795-  14825,  paras.  186-  254  (describing  the 


 incentives,  ability  and  means  for  an  incumbent  LEC  to  engage  in  price  and  non-  price  discrimination);  Non-Accounting 
 Safeguards  Notice,  11  FCC  Rcd  at  18886,  para.  14  (  If  an  incumbent  LEC  charges  its  competitors 
 prices  for  inputs  that  are  higher  than  the  output  prices  charged,  then  the  incumbent  LEC  can  create  a  price 
 squeeze.  The  incumbent  LEC  could  lower  its  retail  price  to  reflect  its  unfair  cost  advantage,  and  competing 
 providers  would  be  forced  either  to  match  the  price  reduction  and  absorb  profit  margin  reductions  or  maintain  their 
 retail  prices  at  existing  levels  and  accept  reductions  in  their  market  shares.  If  the  price  squeeze  were  severe 
 enough  and  continued  long  enough,  the  incumbent  LECs  market  share  could  become  so  large,  and  the  competitors 
 so  weakened,  that  the  incumbent  LEC  could  unilaterally  raise  and  sustain  a  price  above  competitive  levels  by 
 restricting  its  output.  Alternatively,  the  incumbent  LEC  affiliate  could  simply  match  its  competitors  prices  and 
 extract  supra-  competitive  profits.)  (citations  and  internal  quotations  omitted). 


 71  See,  e.  g.,  SBC/  Ameritech  Merger  Order,  14  FCC  Rcd  at  14763-  64,  para.  107  (finding  that  an  incumbent  LEC 


 has  an  incentive  to:  (1)  delay  interconnection  negotiations  and  resolution  of  interconnection  disputes;  (2)  limit 
 both  the  methods  and  points  of  interconnection  and  the  facilities  and  services  to  which  entrants  are  provided 
 access;  (3)  raise  entrants  costs  by  charging  high  prices  for  interconnection,  network  elements  and  services,  and  by 
 delaying  the  provisioning  of,  and  degrading  the  quality  of,  the  interconnection,  services,  and  elements  it 
 provides). 
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 access  services,  which  they  could  use  to  raise  rivals  costs  in  certain  broadband  service  markets 
 where  these  inputs  are  critical  to  a  firms  ability  to  provision  the  particular  broadband  service  to 
 end  user  customers. 


 30.  The  Commission  has  recognized  how  intermodal  competition  can  reduce  the 
 likelihood  of  anti-  competitive  behavior.  72  The  Commission  also  has  recognized  that  different 
 companies  use  different  technologies,  each  with  distinct  advantages  and  disadvantages,  to  bring 
 broadband  services  to  end  users.  73  And  while  the  Commission  has  concluded  that  [  a]  nti-competitive 
 coordination  among  competitors  is  difficult  in  markets  with  vigorous  intermodal 
 competition,  the  interplay  between  competitors  that  use  different  delivery  platforms  in  the  context 
 of  broadband  services  merits  closer  examination.  74  Therefore,  we  ask  that  commenters  identify 
 actual  and  potential  competitors  in  each  relevant  product  market  regardless  of  the  platform  used 
 to  deliver  broadband  services  and  provide  any  relevant  evidence  concerning  these  competitors 
 ability  to  prevent  incumbent  LECs  from  raising  prices  above  competitive  levels  and  engaging  in 
 anti-  competitive  behavior. 


 31.  In  other  words,  commenters  should  specifically  address  the  role  of  both  intermodal 
 and  intramodal  competition  in  assessing  an  incumbent  LECs  ability  to  leverage  power  into  the 
 markets  for  broadband  services.  For  example,  does  the  existence  of  actual  or  potential  intermodal 
 competition  constrain  an  incumbent  LECs  ability  or  incentive  to  discriminate?  Should  our 
 analysis  of  market  power  distinguish  between  markets  with  extensive  intramodal  competition  and 
 those  with  extensive  intermodal  competition,  which  does  not  rely  on  the  incumbents  facilities? 
 To  the  extent  a  particular  geographic  market  does  not  currently  exhibit  extensive  intermodal 
 competition,  we  seek  comment  on  whether  we  should  consider  the  likelihood  that  intermodal 
 competition  will  appear  in  the  future.  If  future  intermodal  competition  is  relevant,  we  ask 
 commenters  to  identify  and  support  a  reasonable  time  frame  within  which  intermodal  competition 
 for  broadband  services  would  have  to  emerge  for  such  potential  competition  to  affect  our  analysis 
 of  the  incumbent  LECs  market  power.  In  addition,  commenters  should  address  the  extent  to 
 which  the  nascent  nature  of  competition  in  a  particular  market  should  inform  our  analysis  of 
 market  power. 


 32.  We  also  ask  that  commenters  explore  the  extent  to  which  current  statutory  and 
 regulatory  requirements,  including  any  competitive  safeguards,  limit  the  market  power  of 


 72  See,  e.  g.,  Comsat  Corporation,  Petition  Pursuant  to  Section  10(  c)  of  the  Communications  Act  of  1934,  as 
 amended,  for  Forbearance  from  Dominant  Carrier  Regulation  and  for  Reclassification  as  a  Non-  Dominant 
 Carrier,  Order  and  Notice  of  Proposed  Rulemaking,  13  FCC  Rcd  14083,  14122-  23,  para.  76  (1998)  (  Intermodal 
 competition  leads  us  to  believe  that  fiber-  optic  cables  represent  a  substitute  for  satellites  in  the  transmission  of 
 switched  voice  service.). 


 73  Inquiry  Concerning  the  Deployment  of  Advanced  Telecommunications  Services  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,  First  Report,  14  FCC  Rcd  2398,  2423-  24,  at  para.  48  (First  Section  706 
 Report). 


 74  Id. 
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 incumbent  LECs.  For  example,  how  should  the  presence  of  wholesale  regulations,  such  as 
 those  contained  in  section  251(  c)  of  the  Communications  Act,  affect  our  analysis  of  the  level  of 
 competition  present  at  the  retail  level?  Finally,  commenters  should  identify  any  other  relevant 
 market  characteristics  in  the  broadband  services  markets  that  may  affect  our  analysis  of  market 
 power. 


 IV.  APPROPRIATE  REGULATORY  REQUIREMENTS 
 A.  Overview 
 33.  Once  we  have  defined  the  relevant  product  and  geographic  markets  for  broadband 
 services,  we  can  use  this  information  to  determine  what  regulatory  requirements,  if  any,  should 
 govern  the  provision  of  broadband  services.  We  begin  by  briefly  describing  relevant  portions  of 
 the  existing  regulatory  structure  for  broadband  services  provided  by  incumbent  LECs.  Then  we 
 invite  interested  parties  to  propose  alternative  requirements  for  these  broadband  services  in  light 
 of  existing  market  and  technological  developments.  We  encourage  interested  parties  to  develop 
 proposals  for  new  or  modified  regulatory  requirements  for  broadband  services. 


 34.  At  the  outset,  we  ask  interested  parties  to  consider  the  potential  for  deregulation 
 or  reduced  regulation  to  foster  increased  broadband  deployment  and  competition  among 
 providers  of  broadband  services.  We  also  ask  that  interested  parties  address  how  their  proposals 
 would  serve  the  Acts  mandate  to  foster  the  deployment  of  broadband  services  and  the  facilities 
 used  in  the  provision  of  broadband  services.  In  addition,  we  invite  interested  parties  to  address 
 the  effect  of  the  statutory  requirements  in  the  1996  Act  on  these  proposals,  as  the  Acts  existing 
 statutory  safeguards  may  reduce  the  need  for  other  forms  of  regulation.  Moreover,  we  ask 
 interested  parties  to  address  the  development  of  intermodal  as  well  as  intramodal  competition  in 
 the  provision  of  broadband  services,  and  the  existence  of  new  technologies  for  the  distribution  of 
 broadband  services,  such  as  fixed  wireless  and  satellite,  that  have  the  potential  to  further  increase 
 competition.  In  addition,  our  existing  and  historical  regulatory  requirements  have  not  necessarily 
 differentiated  bottleneck  facilities  from  the  services  that  are  provided  using  those  facilities,  as  such 
 differentiation  was  not  necessary  under  the  public  switched  telephone  network  paradigm. 
 Accordingly,  we  ask  commenters  to  address  the  complexity  added  by  the  fact  that  incumbent  LEC 
 facilities    previously  used  to  provide  simple  one-  wire  voice  services    are  now  being  used  to 
 provide  a  variety  of  different  services,  many  of  which  are  at  different  stages  of  market 
 development. 


 B.  Existing  Regulatory  Structure 
 35.  As  previously  discussed,  the  Commission  historically  has  distinguished  between 
 dominant  carriers,  which  possess  individual  market  power,  and  non-  dominant  carriers,  which  lack 
 individual  market  power.  75  Non-  dominant  carriers  have  been  subject  to  significantly  reduced 
 regulation.  In  contrast,  dominant  carriers  are  subject  to  a  broad  range  of  regulatory  requirements, 
 that  are  generally  intended  to  protect  consumers  from  unjust  and  unreasonable  rates,  terms  and 


 75  See  Section  II,  supra. 
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 conditions  and  unreasonable  discrimination  in  the  provision  of  communications  services.  76  The 
 Commission  has  streamlined  dominant  carrier  regulation,  however,  to  reflect  the  development  of 
 competition  as  exemplified  in  the  Pricing  Flexibility  Order. 


 36.  The  Commissions  dominant  carrier  regulation  includes  rate  regulation  and  tariff 
 filing  requirements.  77  For  example,  as  provided  in  section  204(  a)(  3)  of  the  Act,  incumbent  LECs 
 may  file  tariff  revisions  on  either  seven  days  or  fifteen  days  notice.  78  The  Commissions  rules 
 also  require  supporting  information,  which  in  some  cases  includes  detailed  cost  data,  be  filed  by 
 dominant  carriers  with  their  tariff  filings.  79 


 37.  Incumbent  LECs  are  subject  to  rate  level  regulation  in  the  provision  of  their 
 interstate  access  services.  80  The  BOCs  and  GTE  are  subject  to  mandatory  price  cap  regulation, 
 and  several  other  incumbent  LECs  have  entered  price  caps  on  an  elective  basis.  81  Smaller 
 incumbent  LECs  are  regulated  under  rate-  of-  return  regulation.  82  As  described  above,  however, 
 the  Commission  has  taken  a  number  of  steps  to  provide  price  cap  incumbent  LECs  with  increased 


 76  47  U.  S.  C.    201  &  202.  Many  of  these  regulatory  requirements  are  also  intended  to  discourage  potential 
 anti-  competitive  behavior  by  incumbent  LECs. 
 77  Section  203(  a)  of  the  Act  generally  requires  common  carriers  to  file  tariffs  governing  the  provision  of  their 


 basic  communications  services,  although  section  203(  b)(  2)  gives  the  Commission  broad  authority  to  modify 
 requirements  made  pursuant  to  this  authority.  47  U.  S.  C.    203  (a)  &  (b)(  2)  (1996). 


 78  47  C.  F.  R.    61.58(  a)(  2)(  i)  (1999).  The  Commissions  rules  also  specify  different  notice  periods  for  a  variety  of 


 other  tariff  filings  by  dominant  carriers,  including  incumbent  LECs.  47  C.  F.  R.    61.58(  a)(  2)(  ii)-(  e)(  iii)(  4)  (1999). 
 SBC  and,  until  recently,  Verizon,  provide  advanced  services  through  separate  subsidiaries  that  were  treated  as  non-dominant, 
 pursuant  to  Commission  merger  orders.  See  Bell  Atlantic/  GTE  Merger  Order,  15  FCC  Rcd  14032; 
 SBC/  Ameritech  Merger  Order,  14  FCC  Rcd  14712.  These  subsidiaries  had  been  deemed  non-  dominant  in  their 
 provision  of  broadband  services.  However,  in  January  2001,  the  United  States  Court  of  Appeals  for  the  District  of 
 Columbia  Circuit  held,  in  ASCENT  v.  FCC,  that  data  affiliates  of  incumbent  LECs  are  subject  to  all  obligations  of 
 section  251(  c)  of  the  Act.  Specifically,  the  ASCENT  decision  overturned  the  Commissions  determination  in  the 
 SBC/  Ameritech  Merger  Order  that,  because  the  separate  advanced  services  affiliate  was  not  a  successor  or  assign 
 of  the  BOC,  the  separate  advanced  services  affiliate  was  not  subject  to  the  resale  obligations  of  section  251(  c)(  4). 
 Association  of  Communications  Enterprises  v.  FCC,  235  F.  3d  662  (D.  C.  Cir.  2001);  see  also  SBC/  Ameritech 
 Merger  Order,  14  FCC  Rcd  14712.  Because  the  Commission  incorporated  by  reference  the  successor  or  assign 
 analysis  of  the  SBC/  Ameritech  Merger  Order  into  the  Bell  Atlantic/  GTE  Merger  Order,  the  D.  C.  Circuits  decision 
 also  impacts  the  Commissions  conclusion  in  the  Bell  Atlantic/  GTE  Merger  Order. 


 79  47  C.  F.  R.    61.38-  39  (1999).  Non-  dominant  IXCs  are  prohibited  from  filing  tariffs  except  for  the  limited 


 purposes  contained  in  61.19(  b)  and  (c).  Non-  dominant  (competitive)  LECs  are  permitted  to  tariff  access  charges 
 within  the  limits  set  in  the  CLEC  Access  Charge  Order,  but  may  not  tariff  charges  above  those  benchmarks. 


 80  47  C.  F.  R.    61.41-  49  (price  cap  rules)  &  65.1-  65.830  (rate  of  return  rules). 


 81  See  generally  MAG  Plan  Order,  16  FCC  Rcd  __,  2001  WL  1381097. 
 82  Id. 
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 pricing  flexibility  for  interstate  access  services  as  wireline  competition  develops.  83  In  addition,  in 
 markets  where  carriers  may  have  the  incentive  and  ability  to  leverage  control  over  bottleneck 
 facilities  to  disadvantage  competitors  in  related  markets,  the  Commission  has  developed  various 
 safeguards  to  limit  that  ability.  84 


 C.  Alternative  Requirements 
 38.  The  basic  elements  of  the  current  regulatory  requirements  for  the  provision  of 
 broadband  services  by  incumbent  LECs  were  largely  in  place  well  before  the  development  of 
 competition  between  providers  of  broadband  services.  In  addition,  the  requirements  were 
 primarily  developed  to  address  problems  created  in  a  one-  wire,  analog,  circuit-  switched  world. 
 As  a  result,  the  existing  regulatory  requirements  may  be  poorly  suited  to  achieving  the  Acts  goals 
 of  promoting  infrastructure  investment,  innovation,  and  the  deployment  of  advanced  services  to 
 all  Americans.  85  In  particular,  should  the  Commission  consider  streamlined  regulatory 
 requirements  for  incumbent  LEC  provision  of  some,  or  all,  broadband  services,  and,  if  so,  what 
 regulatory  safeguards  might  be  necessary? 


 39.  Even  in  situations  where  a  fully  competitive  market  has  not  yet  been  realized, 
 deregulation  or  reduced  regulation  may  lower  administrative  costs,  encourage  investment  and 
 innovation,  reduce  prices  and  offer  consumers  greater  choice.  The  Commission  previously  has 
 recognized  that, 


 while  the  regulatory  tools  are  able  to  prevent  dominant  firms  from 
 fully  exercising  their  market  power,  use  of  these  tools  also  imposes 
 costs  beyond  the  obvious  administrative  costs  of  enforcement  and 
 compliance  to  regulatory  agency  and  regulated  companies 
 respectively.  In  some  circumstances,  these  costs  can  have  profound 
 negative  implications  for  consumer  welfare.  Thus,  as  a  matter  of 
 policy  it  is  clear  it  is  desirable  to  adjust  regulatory  methods  in 
 particular  circumstances  to  the  extent  the  law  permits.  86 


 Accordingly,  we  ask  whether  reduced  regulation  of  services  provided  by  incumbent  LECs, 
 regardless  of  the  extent  of  existing  competition,  may  foster  competition  and  the  deployment  of 
 broadband  facilities  used  in  the  provision  of  many  of  these  services.  Interested  parties  are 
 encouraged  to  address  the  costs  and  benefits  of  regulation  in  this  context. 


 83  See  generally  Section  II,  supra;  LEC  Pricing  Flexibility  Order,  14  FCC  Rcd  14221  (1999).  The  price  cap 
 incumbent  LECs  have  taken  advantage  of  this  pricing  flexibility  to  offer  a  variety  of  advanced  trunking  and  special 
 access  services  outside  of  price  cap  regulation. 


 84  See  generally  forthcoming  Title  I  broadband  proceeding,  described  at  para.  3,  above. 


 85  Section  706  of  the  Telecommunications  Act  of  1996,  Pub.  L.  104-  104,  110  Stat.  56  (1996),  reproduced  in  the 
 notes  under  47  U.  S.  C.    157. 
 86  Competitive  Carrier  Proceeding,  Further  Notice  of  Proposed  Rulemaking,  84  FCC  2d  at  449,  para  12. 
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 40.  In  particular,  we  seek  comment  on  whether  such  an  approach  would  further  the 
 Commissions  ongoing  efforts  to  fulfill  the  goals  of  section  706  of  the  Act,  which  directs  the 
 Commission  to  encourage  the  deployment  on  a  reasonable  and  timely  basis  of  advanced 
 telecommunications  capability  to  all  Americans.  The  Act  specifically  suggests  consideration  of 
 regulatory  forbearance  or  other  approaches  that  remove  barriers  to  infrastructure  investment.  87 
 We  seek  comment  on  what  additional  steps  we  can  take  in  the  context  of  this  proceeding  to  fulfill 
 our  Congressional  mandate  under  section  706. 


 41.  As  discussed  above,  incumbent  LECs  currently  are  classified  as  dominant  in  the 
 provision  of  broadband  services.  88  We  seek  comment  on  what  relevance,  if  any,  these  types  of 
 regulations  have  for  broadband  services  provided  by  incumbent  LECs.  We  seek  comment  on 
 whether  it  would  be  appropriate  to  streamline  the  traditional  dominant  carrier  regulation  of 
 incumbent  LECs  provision  of  broadband  services,  and  if  so,  how  such  dominant  carrier 
 regulation  should  be  reduced.  For  example,  interested  parties  may  believe  that  a  streamlined 
 version  of  the  existing  regulatory  structure  should  be  applied  to  some,  or  all,  incumbent  LEC 
 broadband  services.  In  particular,  we  ask  for  specific  proposals  as  to  which  existing  regulations 
 might  be  removed  or  streamlined  in  their  application  to  broadband  services.  We  urge  parties 
 supporting  such  an  approach  to  identify  the  elements  of  the  existing  regulations  that  they  believe 
 should  be  retained  and  address  in  a  comprehensive  manner  both  the  costs  and  benefits  of  those 
 regulatory  requirements.  We  also  ask  parties  to  address  the  public  interest  benefits  of  declaring 
 an  incumbent  LEC  non-  dominant  or  of  streamlining  regulations,  including  the  impact  of  any 
 proposed  regulatory  structure  on  service  quality,  prices,  and  the  availability  of  competitive 
 alternatives. 


 42.  We  also  ask  parties  to  comment  on  whether  incumbent  LECs  should  be  reclassified 
 as  non-  dominant  in  the  provision  of  broadband  services.  89  Those  that  support  classifying 
 incumbent  LECs  as  non-  dominant  in  the  provision  of  broadband  services  should  explain  whether, 
 under  Competitive  Carrier  precedent,  it  is  possible  to  classify  a  carrier  as  non-  dominant  with 


 87  The  Commission  has  initiated  a  number  of  proceedings  to  ensure  that  the  goals  of  Section  706  are  met.  See 
 First  Section  706  Report,  14  FCC  Rcd  2398;  Second  Section  706  Report,  15  FCC  Rcd  20913.  Specifically,  the 
 Commission  has  sought  to  remove  any  barriers  to  deployment;  to  remove  any  barriers  to  investment  in 
 technologies  that  can  deliver  advanced  services;  and  to  vigorously  promote  a  competitive  marketplace.  Inquiry 
 Concerning  the  Deployment  of  Advanced  Telecommunications  Services  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,  Third  Notice  of  Inquiry,  16  FCC  Rcd  at  15515,  para.  1. 


 88  See  Sections  I  and  II,  supra.  As  part  of  this  proceeding,  we  also  invite  comment  on  the  SBC  Petition 


 requesting  an  expedited  ruling  that  it  is  non-  dominant  in  the  provision  of  advanced  services  and  asking  the 
 Commission  to  forbear  from  dominant  carrier  regulations  of  those  services.  Commenters  should  address  elements 
 of  the  statutory  forbearance  analysis  under  Section  10  of  the  Telecommunications  Act  with  specificity.  47  U.  S.  C.   
 160  (1996). 


 89  See  SBC  Petition  at  1-  2. 
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 respect  to  certain  services  when  it  remains  dominant  with  respect  to  others,  and  in  particular, 
 should  we  do  so  when  the  services  utilize  certain  of  the  same  facilities?  90 


 43.  As  noted  above,  in  different  situations,  the  Commission  has  used  a  variety  of 
 safeguards  to  protect  against  an  incumbents  ability  to  leverage  market  power  arising  from  its 
 control  of  bottleneck  facilities  into  related  markets.  We  seek  comment  on  whether  any  of  our 
 existing  safeguards  would  be  an  appropriate  model  for  safeguards  applied  to  incumbent  LEC 
 provision  of  broadband  services.  91  We  note  that  some  incumbent  LECs  have  provided  broadband 
 services  through  a  separate  affiliate.  92  Should  an  incumbent  LECs  corporate  structure  be  a 
 relevant  consideration  for  our  analysis  here?  93  We  invite  parties  to  suggest  alternative  competitive 
 safeguards  that  could  deter  discrimination  or  make  attempted  discrimination  easier  to  detect,  but 
 could  achieve  this  goal  at  a  reduced  regulatory  cost.  94  We  ask  parties  proposing  alternative 
 safeguards  to  discuss  whether  their  proposal  better  reflects  new  broadband  service  markets 
 characterized  by  multiple  competing  platforms  providing  data-  centric,  digital,  packet-  switched 
 services.  We  seek  comment  on  what  safeguards  should  remain,  if  any,  if  we  declare  an  incumbent 
 LEC  non-  dominant?  For  example,  we  seek  comment  on  the  impact  of  a  declaration  of  non-dominance 
 should  have  on  a  carriers  obligations  under  Computer  II/  III.  95 


 44.  We  also  ask  interested  parties  to  comment  on  whether  the  statutory  requirements 
 applicable  to  incumbent  LECs  under  section  251  of  the  Act  reduce  the  need  for  dominant  carrier 
 regulations  or  existing  competitive  safeguards.  In  particular,  section  251  establishes  extensive 
 regulatory  requirements  applicable  to  incumbent  LECs,  including  collocation,  unbundling  and 
 resale  obligations.  96  We  also  ask  commenters  to  address  whether  the  nondiscrimination 
 requirements  related  to  collocation,  unbundling  and  resale  in  section  251  of  the  Act  --  and  the 


 90  See  Competitive  Carrier  First  Report  and  Order,  85  FCC  2d  at  1,  n.  55. 
 91  Comments  on  the  applicability  of  Computer  II/  III  safeguards  to  incumbent  LEC  broadband  services,  or 
 regarding  modifications  to  those  safeguards,  should  be  addressed  in  the  Commissions  forthcoming  Broadband 
 Proceeding. 


 92  See,  e.  g.,  SBC/  Ameritech  Merger  Order,  14  FCC  Rcd  14712. 


 93  See  SBC  Petition  at  10  (  As  for  the  larger  business  context,  SBC  has  been  competing  in  that  market  since  the 
 early-  to-  mid  1990s,  but  its  market  share  within  its  region  has  remained  static  at  approximately  12  percent;  that  in 
 itself  is  proof  that  SBC  could  not  possibly  quickly  gain  market  power  in  this  market  through  illegal  conduct).  See 
 also  Advanced  Services  Order  &  NPRM  (Aug.  99). 


 94  We  note  that  Verizon  has  proposed  that  incumbent  LECs  might  be  required  to  make  bandwidth  available  to 


 competitors  at  commercially  reasonable  rates.  Verizon  suggests  that  this  approach  could  further  Congress 
 section  706  mandate  by  reducing  regulatory  burdens  on  incumbent  LECs,  while  ensuring  ubiquitous  availability  of 
 broadband  services  to  both  competitors  and  consumers.  Laying  the  Last  Mile,  Tom  Tauke  Remarks  to  Progress 
 and  Freedom  and  Foundation  Conference,  August  21,  2001. 


 95  We  note  that  the  applicability  of  Computer  II/  III  to  broadband  services  is  being  directly  addressed  in  the 


 forthcoming  Broadband  NPRM. 
 96  Section  251(  c)  of  the  Communications  Act,  46  U.  S.  C.    251(  c)  (1996). 
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 extent  of  incumbent  LEC  compliance  with  such  requirements  --  reduce  the  need  for  other  forms 
 of  regulation,  including  dominant  carrier  regulation  and  competitive  safeguards.  As  noted  above, 
 the  Commission  will  be  examining  its  Section  251  unbundling  rules  as  part  of  its  triennial  review.  97 
 We  ask  parties  to  comment  on  how  possible  changes  to  those  rules  might  affect  the  continuing 
 need  for  dominant  carrier  regulation  or  various  competitive  safeguards. 


 45.  We  ask  commenting  parties  to  take  a  number  of  issues  into  account  in  commenting 
 on  or  developing  proposals  for  a  new  or  modified  regulatory  framework  for  the  provision  of 
 broadband  services.  We  invite  comment  on  whether  deregulation  or  reduced  regulation  would 
 foster  the  deployment  of  broadband  services  and  the  facilities  used  in  the  provision  of  many  such 
 services  as  contemplated  in  section  706  of  the  Act,  and  would  facilitate  increased  competition  in 
 the  provision  of  such  services.  Alternatively,  others  suggest  that  ensuring  intramodal  competitive 
 pressure  will  spur  broadband  deployment.  98  We  seek  comment  on  this  contention.  In  addition, 
 interested  parties  should  discuss  the  extent  to  which  different  categories  of  broadband  services 
 face  different  levels  of  competition,  warranting  different  regulatory  treatment.  We  also  ask 
 interested  parties  to  address  the  extent  to  which  the  markets  for  different  broadband  services  are 
 at  different  stages  in  their  development  and  whether  markets  at  different  stages  of  development 
 warrant  different  regulatory  treatment. 


 46.  We  note  that  in  other,  innovative,  competitive  industries,  such  as  the  computer 
 industry,  competitors,  producing  software,  hardware,  and  microprocessors,  constantly  pursue 
 innovation  and  implement  price  reductions.  We  ask  whether  such  dynamic  and  innovative 
 competition  is  either  likely  or  a  reasonable  goal  for  the  provision  of  broadband  services  and  those 
 services  that  are  dependent  on  broadband  services.  Assuming  that  it  is,  we  seek  comment  on  the 
 best  means  to  promote  that  goal.  We  ask  what  forms  of  regulation  or  de-  regulation  would  best 
 spur  deployment  of  alternative  technologies  and  facilities  by  existing  and  potential  competitors. 
 We  note  the  substantial  investment  needed  to  build  broadband  networks,  and  ask  what  costs  our 
 current  regulations  impose  on  providers,  and  seek  input  as  to  the  burden  of  those  regulations. 
 More  generally,  we  seek  comment  on  whether  existing  regulation  inhibits  or  stimulates  the 
 deployment  of  broadband  services.  Specifically,  we  seek  comment  on  whether  reductions  in 
 existing  regulation  would  allow  incumbent  LECs  to  compete  more  effectively  on  an  intermodal 
 basis  and  thus  would  stimulate  competitive  responses  by  companies  using  alternative  technologies 
 such  as  cable,  wireless,  and  satellite.  If  this  is  the  case,  exactly  what  reductions  in  existing 
 regulation  are  warranted?  We  note  that  these  alternative  technologies  are  not  subject  to  the  same 
 regulations  as  incumbent  wireline  competitors  in  the  broadband  services  market.  Would  removal 
 of  regulations  applicable  to  incumbent  wireline  providers  spur  innovation  and  competitive 
 responses  by  providers  using  other  technologies?  Alternatively,  does  regulation  of  the  wireline 
 market  serve  the  public  interest  by  providing  benefits  to  consumers  in  the  alternative  technology 
 markets? 


 97  See  Section  I,  supra. 
 98  See,  e.  g.,  WorldCom  Opposition,  CC  Docket  98-  147  (Oct.  2,  1998);  AT&  T  Comments,  CC  Docket  No.  95-  20 
 (Apr.  16,  2001). 
24
 Federal  Communications  Commission  FCC  01-  360 
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 47.  In  a  similar  vein,  we  ask  interested  parties  to  consider  whether  the  development  of 
 various  broadband  service  categories  are  at  different  stages  of  evolution  and  thus  should  be 
 treated  differently.  For  example,  the  provision  of  broadband  services  to  residential  end-  users  is 
 arguably  still  in  the  early  stages  of  its  development,  and  thus  it  may  not  be  appropriate  to  rely  on 
 current  market  share  data  to  evaluate  whether  any  particular  market  participant  has  or  would 
 likely  have  a  dominant  position  in  the  provision  of  these  services  due  to  the  nascency  of  the 
 market.  However,  the  provision  of  broadband  services  to  large  business  and  institutional  users 
 may  be  a  more  mature  market  and  therefore  current  market  share  data  may  be  a  more  reliable 
 indicator  of  market  power.  Are  there  meaningful  differences  in  the  stage  of  market  development 
 for  different  broadband  services?  Would  any  such  differences  warrant  different  regulatory 
 treatment? 


 48.  We  also  ask  commenters  to  address  the  implications  of  their  proposals  as 
 broadband  services  evolve  in  the  future.  For  example,  the  services  we  evaluate  in  this  proceeding 
 may  ultimately  be  replaced  in  the  future  by  other  services  using  different  technologies.  We  ask 
 parties  to  comment  on  how  such  potential  changes  should  impact  our  decision  to  choose  an 
 appropriate  regulatory  framework.  Finally,  we  ask  interested  parties  to  comment  on  whether  there 
 are  other  regulatory  requirements  that  we  should  consider  modifying  or  eliminating  in  the  context 
 of  this  proceeding.  Perhaps  some  new  regulations  would  be  needed  as  others  are  modified  or 
 eliminated?  We  ask  parties  proposing  consideration  of  additional  regulatory  requirements  to 
 provide  a  full  analysis  of  the  costs  and  benefits  of  those  requirements  consistent  with  the  issues 
 discussed  above. 


 V.  PROCEDURAL  MATTERS 
 A.  Ex  Parte  Presentations 
 49.  These  matters  shall  be  treated  as  a  permit-  but-  disclose  proceeding  in  accordance 
 with  the  Commissions  ex  parte  rules.  99  Persons  making  oral  ex  parte  presentations  are  reminded 
 that  memoranda  summarizing  the  presentations  must  contain  summaries  of  the  substance  of  the 
 presentations  and  not  merely  a  listing  of  the  subjects  discussed.  More  than  a  one  or  two  sentence 
 description  of  the  views  and  arguments  presented  in  generally  required.  100  Other  requirements 
 pertaining  to  oral  and  written  presentations  are  set  forth  in  section  1.1206(  b)  of  the  Commissions 
 rules. 


 B.  Comment  Filing  Procedures 
 50.  Pursuant  to  sections  1.415  and  1.419  of  the  Commissions  rules,  101  interested 
 parties  may  file  comments  within  45  days  after  publication  of  this  Notice  in  the  Federal  Register 
 and  may  file  reply  comments  within  30  days  after  the  date  for  filing  comments.  All  filings  should 


 99  47  C.  F.  R.    1.1200-  1.1216. 
 100  See  47  C.  F.  R.    1.1206(  b)(  2). 
 101  47  C.  F.  R.    1.415,  1.419. 
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 refer  to  CC  Docket  No.  01-  337.  Comments  may  be  filed  using  the  Commissions  Electronic 
 Comment  Filing  System  (ECFS)  or  by  filing  paper  copies.  102  Comments  filed  through  ECFS  can 
 be  sent  as  an  electronic  file  via  the  Internet  to  <http://  www.  fcc.  gov/  e-  file/  ecfs.  html>.  Generally, 
 only  one  copy  of  an  electronic  submission  must  be  filed.  In  completing  the  transmittal  screen, 
 commenters  should  include  their  full  name,  postal  service  mailing  address,  and  the  applicable 
 docket  numbers,  which  in  this  instance  is  CC  Docket  No.  01-  337.  Parties  may  also  submit  an 
 electronic  comment  by  Internet  e-  mail.  To  get  filing  instructions  for  e-  mail  comments, 
 commenters  should  send  an  e-  mail  to  ecfs@  fcc.  gov,  and  should  include  the  following  words  in  the 
 body  of  the  message:  get  form<  your  e-  mail  address.  A  sample  form  and  directions  will  be  sent 
 in  reply. 


 51.  Parties  that  choose  to  file  by  paper  must  file  an  original  and  four  copies  of  each, 
 and  are  hereby  notified  that  effective  December  18,  2001,  the  Commissions  contractor, 
 Vistronix,  Inc.,  will  receive  hand-  delivered  or  messenger-  delivered  paper  filings  for  the 
 Commissions  Secretary  at  a  new  location  in  downtown  Washington,  DC.  The  address  is  236 
 Massachusetts  Avenue,  N.  E.,  Suite  110,  Washington,  DC  20002.  The  filing  hours  at  this  location 
 will  be  8:  00  a.  m.  to  7:  00  p.  m.  All  hand  deliveries  must  be  held  together  with  rubber  bands  or 
 fasteners.  Any  envelopes  must  be  disposed  of  before  entering  the  building.  This  facility  is  the 
 only  location  where  hand-  delivered  or  messenger-  delivered  paper  filings  for  the  Commissions 
 Secretary  will  be  accepted.  Accordingly,  the  Commission  will  no  longer  accept  these  filings  at 
 9300  East  Hampton  Drive,  Capitol  Heights,  MD  20743.  In  addition,  this  is  a  reminder  that, 
 effective  October  18,  2001,  the  Commission  discontinued  receiving  hand-  delivered  or  messenger-delivered 
 filings  for  the  Secretary  at  its  headquarters  location  at  445  12th  Street,  SW, 
 Washington,  DC  20554. 


 52.  Other  messenger-  delivered  documents,  including  documents  sent  by  overnight  mail 
 (other  than  United  States  Postal  Service  (USPS)  Express  Mail  and  Priority  Mail),  must  be 
 addressed  to  9300  East  Hampton  Drive,  Capitol  Heights,  MD  20743.  This  location  will  be  open 
 8:  00  a.  m.  to  5:  30  p.  m.  The  USPS  first-  class  mail,  Express  Mail,  and  Priority  Mail  should 
 continue  to  be  addressed  to  the  Commission's  headquarters  at  445  12th  Street,  SW,  Washington, 
 DC  20554.  The  USPS  mail  addressed  to  the  Commission's  headquarters  actually  goes  to  our 
 Capitol  Heights  facility  for  screening  prior  to  delivery  at  the  Commission. 


 If  you  are  sending  this  type  of 
 document  or  using  this  delivery 
 method 


 It  should  be  addressed  for  delivery  to 


 Hand-  delivered  or  messenger-  delivered 
 paper  filings  for  the  Commissions 
 Secretary 


 236  Massachusetts 
 Avenue,  NE,  Suite  110, 
 Washington,  DC  20002  (8:  00  to  7:  00  p.  m. 
 Other  messenger-  delivered  documents, 
 including  documents  sent  by  overnight 
 mail  (other  than  United  States  Postal 


 9300  East  Hampton  Drive, 
 Capitol  Heights,  MD  20743 
 (8:  00  a.  m.  to  5:  30  p.  m.) 


 102  See  Electronic  Filing  of  Documents  in  Rulemaking  Proceedings,  63  Fed.  Reg.  24121  (1998). 
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 Service  Express  Mail  and  Priority  Mail) 
 United  States  Postal  Service  first-  class 
 mail,  Express  Mail,  and  Priority  Mail 
 445  12  th  Street,  SW 
 Washington,  DC  20554 


 Parties  who  choose  to  file  by  paper  should  also  submit  their  comments  on  diskette.  These 
 diskettes  should  be  submitted  to  Janice  Myles,  Policy  &  Program  Planning  Division,  Common 
 Carrier  Bureau,  Federal  Communications  Commission,  236  Massachusetts  Avenue,  N.  E., 
 Suite  110,  Washington,  DC  20002.  Such  a  submission  should  be  on  a  3.5  inch  diskette  formatted 
 in  an  IBM  compatible  format  using  Microsoft  Word  or  compatible  software.  The  diskette  should 
 be  accompanied  by  a  cover  letter  and  should  be  submitted  in  read  only  mode.  The  diskette 
 should  be  clearly  labeled  with  the  commenters  name,  proceeding  (including  the  docket  number,  in 
 this  case,  CC  Docket  No.  01-  337),  type  of  pleading  (comment  or  reply  comment),  date  of 
 submission,  and  the  name  of  the  electronic  file  on  the  diskette.  The  label  should  also  include  the 
 following  phrase:  Disk  Copy  --  Not  an  Original.  Each  diskette  should  contain  only  one  partys 
 pleading,  preferably  in  a  single  electronic  file.  In  addition,  commenters  must  send  diskette  copies 
 to  the  Commissions  copy  contractor,  Qualex  International,  Portals  II,  445  12  th  Street  S.  W.,  CY-B402, 
 Washington,  D.  C.  20554. 


 53.  Regardless  of  whether  parties  choose  to  file  electronically  or  by  paper,  parties 
 should  also  file  one  copy  of  any  documents  filed  in  this  docket  with  the  Commissions  copy 
 contractor,  Qualex  International,  Portals  II,  445  12  th  Street  S.  W.,  CY-  B402,  Washington,  D.  C. 
 20554  (telephone  202-  863-  2893;  facsimile  202-  863-  2898)  or  via  e-  mail  at  qualexint@  aol.  com. 


 54.  Comments  and  reply  comments  must  include  a  short  and  concise  summary  of  the 
 substantive  arguments  raised  in  the  pleading.  Comments  and  reply  comments  must  also  comply 
 with  section  1.  48  and  all  other  applicable  sections  of  the  Commissions  rules.  103  We  direct  all 
 interested  parties  to  include  the  name  of  the  filing  party  and  the  date  of  the  filing  on  each  page  of 
 their  comments  and  reply  comments.  All  parties  are  encouraged  to  utilize  a  table  of  contents, 
 regardless  of  the  length  of  their  submission.  We  also  strongly  encourage  that  parties  track  the 
 organization  set  forth  in  the  Notice  in  order  to  facilitate  our  internal  review  process. 


 C.  Initial  Regulatory  Flexibility  Analysis 
 55.  As  required  by  the  Regulatory  Flexibility  Act  of  1980,  as  amended  (RFA),  104  the 
 Commission  has  prepared  the  present  Initial  Regulatory  Flexibility  Analysis  (IRFA)  of  the  possible 
 significant  economic  impact  on  a  substantial  number  of  small  entities  by  the  policies  and  rules 
 proposed  in  this  Notice.  Written  public  comments  are  requested  on  this  IRFA.  Comments  must 
 be  identified  as  responses  to  the  IRFA  and  must  be  filed  by  the  deadlines  for  comments  on  the 
 Notice  provided  above  in  Section  V.  B.  The  Commission  will  send  a  copy  of  the  Notice,  including 


 103  See  47  C.  F.  R.    1.48. 
 104  See  5  U.  S.  C.    603.  The  RFA,  see  5  U.  S.  C.    601  et.  seq.,  has  been  amended  by  the  Small  Business 
 Regulatory  Enforcement  Fairness  Act  of  1996  (SBREFA),  Pub.  L.  No.  104-  121,  110  Stat.  857  (1996). 
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 this  IRFA,  to  the  Chief  Counsel  for  Advocacy  of  the  Small  Business  Administration.  105  In 
 addition,  the  Notice  and  IRFA  (or  summaries  thereof)  will  be  published  in  the  Federal  Register.  106 


 1.  Need  for,  and  Objectives  of,  the  Proposed  Rules 
 56.  In  this  proceeding,  we  seek  comment  on:  (1)  the  nature  and  scope  of  the  market 
 for  domestic  broadband  services;  (2)  the  relevant  market  dynamics  affecting  the  provision  of 
 domestic  broadband  services;  and  (3)  the  appropriate  regulatory  requirements  for  the  provision  of 
 broadband  services  by  incumbent  LECs,  given  current  market  conditions.  The  basic  elements  of 
 the  existing  regulatory  requirements  for  incumbent  LEC-  provided  broadband  services  were 
 initially  developed  in  an  era  of  circuit-  switched,  analog  voice  services,  and  may  no  longer  serve 
 the  public  interest.  Thus,  we  ask  interested  parties  to  address  how  the  Commission  can  best 
 balance  the  goals  of  encouraging  advanced  telecommunications  investment  and  deployment, 
 fostering  competition  in  the  provision  of  broadband  services,  promoting  innovation,  and 
 eliminating  unnecessary  regulation.  This  proceeding  also  invites  comment  on  the  Petition  filed  by 
 SBC  Communications  on  October  3,  2001,  requesting  an  expedited  ruling  that  it  is  non-  dominant 
 in  the  provision  of  advanced  services,  and  asking  the  Commission  to  forebear  from  dominant 
 carrier  regulation  of  those  services. 


 2.  Legal  Basis 
 57.  The  legal  basis  for  any  action  that  may  be  taken  pursuant  to  the  Notice  is 
 contained  in  sections  4,  10,  201-  202,  214,  303  and  403  of  the  Communications  Act  of  1934,  as 
 amended,  47  U.  S.  C.    154,  160,  201-  204,  214,  303,  and  403,  section  706  of  the 
 Telecommunications  Act  of  1996,  and  sections  1.1,  1.48,  1.411,  1.412,  1.415,  1.419,  and  1.1200- 
 1.1216,  of  the  Commissions  rules,  47  C.  F.  R.    1.1,  1.48,  1.411,  1.412,  1.415,  1.419,  and 
 1.1200-  1.1216. 


 3.  Description  and  Estimate  of  the  Number  of  Small  Entities  to  Which 
 the  Proposed  Rules  will  Apply 


 58.  The  RFA  directs  agencies  to  provide  a  description  of  and,  where  feasible,  an 
 estimate  of  the  number  of  small  entities  that  will  be  affected  by  the  proposed  rules.  107  The  RFA 
 generally  defines  the  term  small  entity  as  having  the  same  meaning  as  the  terms  small 
 business,  small  organization,  and  small  governmental  jurisdiction.  108  In  addition,  the  term 
 small  business  has  the  same  meaning  as  the  term  small  business  concern  under  the  Small 


 105  See  5  U.  S.  C.    603(  a). 
 106  See  id. 
 107  5  U.  S.  C.    603(  b)(  3),  604(  a)(  3). 
 108  Id.    601(  6). 
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 Business  Act.  109  A  small  business  concern  is  one  which:  (1)  is  independently  owned  and  operated; 
 (2)  is  not  dominant  in  its  field  of  operation;  and  (3)  satisfies  any  additional  criteria  established  by 
 the  Small  Business  Administration  (SBA).  110 


 59.  We  have  included  small  incumbent  LECs  in  this  present  RFA  analysis.  As  noted 
 above,  a  small  business  under  the  RFA  is  one  that,  inter  alia,  meets  the  pertinent  small  business 
 size  standard  (e.  g.,  a  telephone  communications  business  having  1,500  or  fewer  employees),  and 
 is  not  dominant  in  its  field  of  operation.  111  The  SBA's  Office  of  Advocacy  contends  that,  for 
 RFA  purposes,  small  incumbent  LECs  are  not  dominant  in  their  field  of  operation  because  any 
 such  dominance  is  not  national  in  scope.  112  We  have  therefore  included  small  incumbent  LECs 
 in  this  RFA  analysis,  although  we  emphasize  that  this  RFA  action  has  no  effect  on  FCC  analyses 
 and  determinations  in  other,  non-  RFA  contexts. 


 60.  Local  Exchange  Carriers.  Neither  the  Commission  nor  the  SBA  has  developed  a 
 definition  for  small  local  exchange  carriers.  The  closest  applicable  definitions  for  this  type  of 
 carrier  under  SBA  rules  is  for  telephone  communications  companies  other  than  radiotelephone 
 (wireless)  companies.  113  The  most  reliable  source  of  information  regarding  the  number  of  LECs 
 nationwide  appears  to  be  the  data  that  we  collect  annually  in  connection  with  the 
 Telecommunications  Relay  Service  (TRS).  114  According  to  our  most  recent  data,  there  are  1,335 
 incumbent  LECs.  115  Although  some  of  these  carriers  may  not  be  independently  owned  and 
 operated,  or  have  more  than  1,500  employees,  we  are  unable  at  this  time  to  estimate  with  greater 
 precision  the  number  of  LECs  that  would  qualify  as  small  business  concerns  under  the  SBA's 


 109  Id.    601(  3)  (incorporating  by  reference  the  definition  of  small  business  concern  in  the  Small  Business  Act, 
 15  U.  S.  C.    632).  Pursuant  to  5  U.  S.  C.    601(  3),  the  statutory  definition  of  a  small  business  applies  unless  an 
 agency,  after  consultation  with  the  Office  of  Advocacy  of  the  Small  Business  Administration  and  after  opportunity 
 for  public  comment,  establishes  one  or  more  definitions  of  such  terms  which  are  appropriate  to  the  activities  of  the 
 agency  and  publishes  such  definitions(  s)  in  the  Federal  Register. 


 110  5  U.  S.  C.    632. 


 111  Id. 
 112  Letter  from  Jere  W.  Glover,  Chief  Counsel  for  Advocacy,  SBA,  to  William  E.  Kennard,  Chairman,  FCC  (May 
 27,  1999).  The  Small  Business  Act  contains  a  definition  of  small  business  concern,  which  the  RFA  incorporates 
 into  its  own  definition  of  small  business.  See  15  U.  S.  C.    632(  a)  (Small  Business  Act);  5  U.  S.  C.    601(  3) 
 (RFA).  SBA  regulations  interpret  small  business  concern  to  include  the  concept  of  dominance  on  a  national 
 basis.  13  C.  F.  R.    121.102(  b).  Since  1996,  out  of  an  abundance  of  caution,  the  Commission  has  included  small 
 incumbent  LECs  in  its  regulatory  flexibility  analyses.  See,  e.  g.,  Implementation  of  the  Local  Competition 
 Provisions  of  the  Telecommunications  Act  of  1996,  CC  Docket  96-  98,  First  Report  and  Order,  11  FCC  Rcd  15499, 
 16144-  45  (1996). 


 113  13  C.  F.  R.    121.201,  NAICS  codes  51331,  51333,  and  51334. 


 114  47  C.  F.  R.    64.601  et  seq.;  Carrier  Locator:  Interstate  Service  Providers,  FCC  Common  Carrier  Bureau, 
 Industry  Analysis  Division  (rel.  Oct.  2000)  (Carrier  Locator). 
 115  Carrier  Locator  at  Table  1.  The  total  for  competitive  LECs  includes  competitive  access  providers  and 


 competitive  LECs. 
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 definition.  Consequently,  we  estimate  that  there  are  no  more  than  1,335  small  entity  incumbent 
 LECs  that  may  be  affected  by  the  proposals  in  the  NPRM. 


 4.  Description  of  Projected  Reporting,  Recordkeeping  and  Other 
 Compliance  Requirements 


 61.  We  expect  that  any  proposal  we  may  adopt  pursuant  this  Notice  will  decrease 
 existing  reporting,  recordkeeping  or  other  compliance  requirements.  As  noted  above,  dominant 
 carriers  are  currently  subject  to  a  broad  range  of  regulatory  requirements  that  are  generally 
 intended  to  protect  consumers  from  unjust  and  unreasonable  rates,  terms,  and  conditions  and 
 unreasonable  discrimination  in  the  provision  of  communications  services.  116  The  Commissions 
 dominant  carrier  regulation  includes  rate  regulation  and  tariff  filing  requirements,  117  and  also 
 requires  supporting  information,  which  in  some  cases  includes  detailed  cost  data,  to  be  filed  by 
 dominant  carriers  with  their  tariff  filings.  118  Incumbent  LECs  are  subject  to  rate  level  regulation  in 
 the  provision  of  their  interstate  access  services.  119  The  BOCs  and  GTE  are  subject  to  mandatory 
 price  cap  regulation,  and  several  other  incumbent  LECs  have  entered  price  caps  on  an  elective 
 basis,  while  smaller  incumbent  LECs  are  regulated  under  rate-  of-  return  regulation.  120  In  addition, 
 in  markets  where  carriers  may  have  the  incentive  and  ability  to  leverage  control  over  bottleneck 
 facilities  to  disadvantage  competitors  in  related  markets,  the  Commission  has  developed  various 
 safeguards  to  neutralize  that  ability.  This  Notice  seeks  comment  on  what  relevance,  if  any,  these 
 types  of  regulations  have  for  broadband  services  provided  by  incumbent  LECs,  and  asks  whether 
 it  would  be  appropriate  to  streamline  the  traditional  dominant  carrier  regulations  of  incumbent 
 LECs  provision  of  broadband  services. 


 5.  Steps  Taken  to  Minimize  Significant  Economic  Impact  on  Small 
 Entities,  and  Significant  Alternatives  Considered 


 62.  The  RFA  requires  an  agency  to  describe  any  significant,  specifically  small  business, 
 alternatives  that  it  has  considered  in  reaching  its  proposed  approach,  which  may  include  the 
 following  four  alternatives  (among  others):  (1)  the  establishment  of  differing  compliance  or 
 reporting  requirements  or  timetables  that  take  into  account  the  resources  available  to  small 
 entities;  (2)  the  clarification,  consolidation,  or  simplification  of  compliance  or  reporting 
 requirements  under  the  rule  for  small  entities;  (3)  the  use  of  performance,  rather  than  design, 


 116  See  Section  IV,  above. 
 117  Section  203(  a)  of  the  Communications  Act  generally  requires  common  carriers  to  file  tariffs  governing  the 
 provision  of  their  basic  communications  services,  although  section  203(  b)(  2)  gives  the  Commission  broad  authority 
 to  modify  requirements  made  pursuant  to  this  authority.  47  U.  S.  C.    203  (a)  &  (b)(  2)  (1996). 


 118  47  C.  F.  R.    61.38-  39  (1999).  Non-  dominant  IXCs  are  prohibited  from  filing  tariffs  except  for  the  limited 


 purposes  contained  in  61.19(  b)  and  (c).  Non-  dominant  (competitive)  LECs  are  permitted  to  tariff  access  charges 
 within  the  limits  set  in  the  CLEC  Access  Charge  Order,  but  may  not  tariff  charges  above  those  benchmarks. 


 119  See  47  C.  F.  R.    61.41-  49  (price  cap  rules)  &  65.1-  65.830  (rate  of  return  rules). 


 120  See  generally  MAG  Plan  Order,  16  FCC  Rcd  __,  2001  WL  1381097. 
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 standards;  and  (4)  an  exemption  from  coverage  of  the  rule,  or  any  part  thereof,  for  small  entities.  121 
 63.  The  overall  objective  of  this  proceeding  is  to  reduce  existing  regulatory  burdens  on 
 incumbent  LECs  to  the  extent  consistent  with  the  public  interest.  The  Notice  seeks  specific 
 proposals  as  to  which  existing  regulations  might  be  removed  or  streamlined  in  their  application  to 
 broadband  services,  and  asks  parties  to  comment  on  whether  incumbent  LECs  should  be 
 reclassified  as  non-  dominant  in  the  provision  of  broadband  services.  122  The  Notice  further  asks 
 parties  to  discuss  the  extent  to  which  different  categories  of  broadband  services  face  different 
 levels  of  competition,  warranting  different  regulatory  treatment,  and  to  address  the  extent  to 
 which  the  markets  for  different  broadband  services  are  at  different  stages  in  their  development  and 
 thus  should  be  treated  differently  for  regulatory  purposes.  It  asks  what  forms  of  regulation  or  de-regulation 
 would  best  spur  deployment  of  alternative  technologies  and  facilities  by  existing  and 
 potential  competitors,  and  seeks  comment  on  whether  existing  regulation  inhibits  or  stimulates  the 
 deployment  of  broadband  services. 


 6.  Federal  Rules  that  May  Duplicate,  Overlap,  or  Conflict  with  the 
 Proposed  Rules 


 64.  None. 
 VI.  ORDERING  CLAUSES 
 65.  Accordingly,  IT  IS  ORDERED  that,  pursuant  to  the  authority  contained  in 
 sections  2,  4(  i)-  4(  j),  201,  and  303(  r)  of  the  Communications  Act  of  1934,  as  amended,  47  U.  S.  C. 
   152,  154(  i)-  4(  j),  201,  303(  r),  this  Notice  IS  ADOPTED. 


 121  5  U.  S.  C.    603(  c). 
 122  See  Section  IV,  above. 
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 66.  IT  IS  FURTHER  ORDERED  that  the  Commissions  Consumer  Information 
 Bureau,  Reference  Information  Center,  SHALL  SEND  a  copy  of  this  Notice,  including  the  Initial 
 Regulatory  Flexibility  Analysis,  to  the  Chief  Counsel  for  Advocacy  of  the  Small  Business 
 Administration. 


 FEDERAL  COMMUNICATIONS  COMMISSION 


 Magalie  Roman  Salas 
 Secretary 
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 Federal  Communications  Commission  FCC  01-  360 
 SEPARATE  STATEMENT  OF  CHAIRMAN  MICHAEL  K.  POWELL 


 Re:  Review  of  Regulatory  Requirements  for  Incumbent  LEC  Broadband  Telecommunications 
 Services  et  al.,  CC  Docket  No.  01-  337  et  al. 


 Re:  Review  of  the  Section  251  Unbundling  Obligations  of  Incumbent  Local  Exchange 
 Carriers  et  al.,  CC  Docket  Nos.  01-  338  et  al. 


 In  this  combined  statement,  I  write  separately  to  underscore  my  support  for  these  two 
 Notices  of  Proposed  Rulemaking,  which  comprise  the  second  and  third  in  a  series  of  notices  the 
 Commission  recently  announced  that  will  begin  Phase  II  of  our  local  competition  implementation 
 and  enforcement  efforts  under  the  1996  Act.  1 


 Review  of  Regulatory  Requirements  for  Incumbent  LEC  Broadband  Telecommunications 
 Services 


 I  vigorously  support  the  Notice  we  hereby  adopt  that  initiates  a  review  of  the  regulatory 
 requirements  applicable  to  incumbent  LEC  provision  of  high-  speed  telecommunications  services. 
 In  this  proceeding,  the  Commission  will  ask  whether  potentially  robust  competition  among 
 multiple  types  of  broadband  service  providers  suggests  that  we  should  avoid  subjecting 
 incumbents  to  the  same  regulatory  burdens  that  we  impose  on  these  carriers  with  respect  to  their 
 provision  of  local  telephone  service.  That  is,  we  ask  whether  incumbent  LECs,  which  are  so 
 clearly  dominant  in  the  provision  of  local  phone  service,  must  also  be  treated  as  dominant  as  they 
 use  DSL  and  other  technologies  to  provide  high-  speed  telecommunications  services  in 
 competition  with  cable  modem  service  providers  and  other  types  of  platforms.  I  would  point  out 
 that  this  item  focuses  on  traditional  Title  II  common  carrier  regulation,  historically  arising  out  of 
 the  section  201  and  202  of  the  Communications  Act  of  1934,  as  applied  to  incumbent  LEC 
 provision  of  high-  speed  telecommunications  services.  In  contrast,  the  aforementioned  proceeding 
 regarding  regulation  of  incumbent  LEC  broadband  information  services  will  address  the  question 
 whether  Title  I  should  apply  when  incumbent  LECs  provide  a  bundled  high-  speed  information 
 service  offering. 


 I  would  emphasize  that  our  initiation  of  this  proceeding  should  not  suggest  a  grand 
 departure  from  our  ongoing  efforts  to  implement  unbundling,  collocation  and  other  market-opening 
 requirements  with  respect  to  incumbent  LECs  pursuant  to  section  251(  c)(  3)  of  the  Act. 


 1  The  first  of  these  items  was  the  Notice  of  Proposed  Rulemaking  regarding  performance  requirements  for  UNE 
 provisioning  that  we  adopted  at  the  November  agenda  meeting.  Performance  Measurements  and  Standards  for 
 Unbundled  Network  Elements  and  Interconnection,  et  al.,  CC  Docket  No.  01-  318,  Notice  of  Proposed  Rulemaking, 
 FCC  01-  331  (rel.  Nov.  19,  2001).  In  addition  to  that  Notice  and  the  two  items  captioned  above,  we  will  in  the 
 coming  weeks  seek  comment  on  the  appropriate  regulatory  framework  for  incumbent  LEC  provision  of  broadband 
 information  services. 
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 2 
 These  other  requirements  are  intended  to  allow  competing  carriers,  particularly  facilities-  based 
 carriers,  to  provide  new  and  innovative  telecommunications  services.  By  the  express  terms  of  the 
 statute,  the  Commission  is  duty-  bound  to  continue  our  implementation  and  enforcement  of  these 
 provisions,  and  we  will. 


 Rather,  this  Notice  of  Proposed  Rulemaking  is  intended  to  develop  further  one  more 
 avenue  of  thinking  about  how  regulation  can  serve  to  help  (or  hinder)  broadband  deployment.  It 
 is,  in  that  sense,  not  a  signpost  heralding  a  new  direction  but  an  attempt  to  add  yet  another  arrow 
 to  the  regulatory  quiver  we  will  use  to  attack  and,  in  conjunction  with  other  forces  outside  our 
 purview,  eventually  subdue  the  broadband  beast. 


 Notwithstanding  my  enthusiasm  for  our  decision  to  initiate  this  inquiry,  I  for  one  have  an 
 open  mind  as  to  how  these  questions  should  be  answered.  For  example,  it  may  prove  too 
 unwieldy  for  both  carriers  and  the  Commission  to  treat  incumbents  as  dominant  for  their  provision 
 of  traditional  local  service  but  non-  dominant  for  their  provision  of  high-  speed  telecommunications 
 services.  I  also  acknowledge  that  declaring  incumbent  LEC  provision  of  broadband 
 telecommunications  services  non-  dominant  could  have  consequences  in  other  areas  of  regulation 
 that  the  Commission  has  not  yet  fully  anticipated.  Yet  the  importance  of  broadband  deployment 
 to  the  public  interest  and  welfare  is  too  great  to  disregard  any  potential  method  of  facilitating  that 
 deployment.  In  sum,  we  must  ensure  that  we  leave  no  stone  unturned  in  our  pursuit  of  this 
 important  goal. 


 Review  of  the  Section  251  Unbundling  Obligations  of  Incumbent  Local  Exchange  Carriers 
 I  similarly  and  wholeheartedly  support  the  Notice  we  adopt  here  that  initiates  our 
 scheduled  triennial  review  of  UNE  obligations  imposed  on  incumbent  LECs  pursuant  to  sections 
 251(  c)(  3)  and  251(  d)(  2).  Taking  our  cues  from  the  Supreme  Court  in  its  opinion  remanding  to 
 the  Commission  the  task  of  giving  meaningful  effect  to  these  provisions,  my  former  colleagues 
 and  I  determined  that  the  agency  would,  in  three  years,  revisit  its  decisions  regarding  the 
 availability  of  UNEs.  2  The  purpose  of  this  triennial  review  would  be  to  keep  those  decisions 
 current  with  ongoing  market  and  regulatory  developments.  That  was  in  1999,  and  now  the  year 
 2002  fast  approaches. 


 Not  surprisingly,  however,  I  support  this  item  for  reasons  other  than  the  fact  that  it  will 
 put  the  Commission  in  a  position  to  deliver  on  the  commitment  it  made  in  1999.  First,  it 
 underscores  the  Commissions  ongoing  commitment  to  the  promotion  of  facilities-  based 
 competition,  which  was  pronounced  most  clearly  by  my  former  colleagues  and  I  in  the  1999  UNE 
 Remand  Order.  3  I  believe  this  commitment  should  focus,  in  particular,  on  both  so-  called  full 


 2  Implementation  of  the  Local  Competition  Provisions  of  the  Telecommunications  Act  of  1996,  Third  Report 
 and  Order  and  Fourth  Further  Notice  of  Proposed  Rulemaking,  15  FCC  Rcd  3696  (1999)  (  UNE  Remand  Order), 
   151. 


 3  UNE  Remand  Order,    14. 
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 facilities-  based  competition  and  competition  from  newer  entrants  who  supplement  their  own 
 facilities  with  network  elements  leased  from  the  incumbent.  As  I  have  demonstrated  in  my 
 decisions  and  public  statements  over  my  four  years  at  the  Commission,  I  fully  support  the  use  of 
 facilities  and  individual  UNEs  as  means  to  promote  local  competition  while  simultaneously 
 furthering  the  related  goals  of  encouraging  deregulation  and  innovation.  The  1996  Act  and  our 
 experience  since  its  passage  demand  no  less. 


 Second,  I  support  this  item  because  it  emphasizes  further  an  area  of  inquiry  begun  in  the 
 UNE  Remand  Order.  Specifically,  in  that  Order,  we  considered  how  the  Acts  goals  of 
 encouraging  broadband  deployment  and  investment  in  competing  facilities  should  shape 
 unbundling  policy.  4  I  support  our  decision  here  to  continue  and  to  expand  this  area  of  inquiry. 


 Third,  I  support  the  Commissions  decision,  in  seeking  comment  here  on  whether  to 
 unbundle  aspects  of  the  incumbents  network,  to  ask  whether  and  the  extent  to  which  we  should 
 take  note  of  the  availability  of  technologies  other  than  circuit-  switched  telephony  provided  by 
 traditional  common  carriers.  In  particular,  this  Notice  expressly  focuses  on  the  roles  that  cable 
 and  wireless  companies  have  begun  and  will  continue  to  play  in  the  market  for  telephony  and 
 broadband  telecommunications  services.  This  emphasis  may  also  be  viewed  as  expansion  of  an 
 avenue  of  inquiry  begun  by  the  previous  Commission.  Specifically,  in  the  UNE  Remand  Order, 
 my  former  colleagues  and  I  appropriately  followed  the  Supreme  Courts  demand  that  we  not  blind 
 ourselves  to  the  availability  of  self-  provisioned  or  other  alternative  facilities  in  determining 
 whether  to  unbundle  elements  of  the  incumbent  LECs  network.  5 


 To  my  mind,  it  seems  premature  to  suggest  that  the  availability  of  such  technologies 
 should  be  fully  dispositive  of  the  question  whether  to  require  the  availability  of  specific  UNEs. 
 Yet  it  does  stand  to  reason  that  such  availability  may  give  us  some  indication  of  the  alternative 
 tools  newer  entrants  could  use  to  serve  customers  if  the  Commission  were  to  decline  to  unbundle 
 any  particular  element  of  the  network.  I  encourage  parties  to  provide  detailed  and  well-  supported 
 comments  in  order  to  help  us  determine  whether  this  line  of  reasoning  is,  in  fact,  sound. 


 As  this  Notice  itself  reminds  us,  the  Commission  now  has  the  benefit  of  two  years  of 
 experience  with  the  current  unbundling  rules  and  almost  six  years  of  experience  with  promoting 
 competition  since  the  1996  Act  was  passed.  These  are  no  doubt  merely  the  opening  chapters  of  a 
 regulatory  epic  that  will  take  many  years  to  rewrite  a  near  century-  long  history  of  legally 
 sanctioned  monopoly  in  the  telephone  market.  But  I  believe  it  is  critical  that  we  take  stock  of  the 
 lessons  we  have  learned  so  far  and  make  any  changes  that  may  be  necessary  to  ensure  that  our 
 rules  remain  faithful  to  the  statute  and  its  goals  of  promoting  competition,  deregulation  and 
 innovation  in  telecommunications  markets. 


 *  *  * 


 4  UNE  Remand  Order,    107-  113. 
 5  UNE  Remand  Order,    8. 
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 I  thank  the  Common  Carrier  Bureau  staff  and  my  colleagues  for  their  enormous  work  on 
 these  Notices  and  look  forward  to  working  with  them,  as  well  as  my  state  commission  colleagues, 
 in  carrying  out  both  of  these  important  Phase  II  proceedings. 
36
 Federal  Communications  Commission  FCC  01-  360 
 SEPARATE  STATEMENT  OF 
 COMMISSIONER  MICHAEL  J.  COPPS 


 Re:  Review  of  the  Section  251  Unbundling  Obligations  of  Incumbent  Local  Exchange 
 Carriers,  Notice  of  Proposed  Rulemaking;  and  Review  of  Regulatory  Requirements  for 
 Incumbent  LEC  Broadband  Telecommunications  Services,  Notice  of  Proposed 
 Rulemaking. 


 I  will  vote  to  approve  these  Notices  of  Proposed  Rulemaking  because  I  think  they  have 
 been  significantly  improved,  and  given  more  balance,  during  the  discussions  preceding  todays 
 meeting.  These  Notices  recognize  the  importance  of  competition  and,  importantly,  do  not  reach 
 tentative  conclusions.  Nevertheless,  I  do  not  vote  for  these  Notices  without  some  concern  for  the 
 competition  framework  laid  out  by  Congress  in  the  1996  Act. 


 I  understand  the  need  to  ask  questions.  In  particular,  the  Commission  indicated  in  1999 
 that  it  would  reexamine  every  three  years  the  list  of  network  elements  that  need  to  be  unbundled 
 pursuant  to  section  251(  c)(  3).  I  generally  do  not  mind  asking  questions,  but  we  must  be  sensitive 
 to  the  larger  context. 


 This  is  a  time  of  great  uncertainty  in  the  economy,  for  the  telecommunications  industry, 
 and  for  competition  for  both  telecommunications  and  Internet  services.  The  years  since  passage 
 of  the  Act  have  seen  high-  flying  expectations,  and  lately,  descent  into  worry  and  trepidation.  I 
 hear  from  competitors  and  incumbents  alike  the  desire  for  certainty  and  stability  in  the  regulatory 
 environment.  I  fear  that  these  broad  Notices  may  not  be  meeting  this  need. 


 Some  parties  may  read  these  Notices  and  conclude  that  the  Commission  has  a 
 predetermined  agenda  to  remake  the  competition  framework.  Whether  accurate  or  not,  this 
 perception,  coupled  with  the  uncertainty  created  by  these  broad  Notices,  can  damage  competition 
 as  surely  as  any  final  rules  adopted  by  this  Commission. 


 We  must  recognize  that  setting  competition  policy  is  the  exclusive  jurisdiction  of 
 Congress.  I  approach  these  proceedings  optimistic  that  the  Commission  will  show  proper 
 restraint  and  will  not  presume  to  question  the  statutory  competitive  framework.  Instead,  the 
 Commission  should  use  these  proceedings  to  understand  the  marketplace  better  in  our  role  as 
 policy  implementers  and  not  policy  makers.  And  we  should  not  create  concern,  even  unwittingly, 
 that  our  zeal  to  deregulate  before  meaningful  competition  develops  might  cripple  the  very 
 competition  that  Congress  sought  to  engender. 


 Let  the  record  show,  however,  that  if  our  proceedings  should  ever  turn  into  an  attempt  to 
 undermine  the  competitive  framework  that  Congress  adopted  in  the  1996  Act,  I  will    without 
 hesitation    oppose  such  overreaching. 
37