VOICE, VIDEO AND

BROADBAND:

THE CHANGING

COMPETITIVE LANDSCAPE AND

ITS IMPACT ON CONSUMERS

U.S. DEPARTMENT OF JUSTICE

NOVEMBER 2008

U.S. Department of Justice

VOICE, VIDEO AND BROADBAND:

THE CHANGING COMPETITIVE LANDSCAPE

AND ITS IMPACT ON CONSUMERS

ISSUED BY THE

U.S. DEPARTMENT OF JUSTICE

NOVEMBER 2008
This report should be cited as:

U.S. Dep’t of Justice, Voice, Video and Broadband: The Changing Competitive Landscape and

Its Impact on Consumers (November 2008).

This report can be accessed electronically at:

http://www.usdoj.gov/atr/public/reports/239284.pdf
U.S. DEPARTMENT OF JUSTICE

ANTITRUST DIVISION

THOMAS O. BARNETT Assistant Attorney General

Deborah A. Garza Deputy Assistant Attorney General for Regulatory Matters

Ken Heyer Acting Deputy Assistant Attorney General for Economic Analysis

and Economics Director of Enforcement

David L. Meyer Deputy Assistant Attorney General for Civil Enforcement

James J. O’Connell, Jr. Deputy Assistant Attorney General for International, Policy and

Appellate Matters

J. Robert Kramer, II Director of Operations

Patricia A. Brink Deputy Director of Operations

REPORT CONTRIBUTORS:

Anne Marie Cushmac Counsel to the Assistant Attorney General

W. Robert Majure Chief, Competition Policy Section

Jonathan E. Henly Economist, Competition Policy Section

Robert A. Potter Chief, Legal Policy Section

Nancy M. Goodman Chief, Telecommunications and Media Section

Laury E. Bobbish Assistant Chief, Telecommunications and Media Section

Hillary B. Burchuk Trial Attorney, Telecommunications and Media Section

Luin P. Fitch Trial Attorney, Telecommunications and Media Section

Lawrence M. Frankel Trial Attorney, Telecommunications and Media Section

Matthew C. Hammond Trial Attorney, Telecommunications and Media Section

Brian C. Hill Trial Attorney, Telecommunications and Media Section

Deborah A. Roy Trial Attorney, Telecommunications and Media Section

Yvette Tarlov Trial Attorney, Telecommunications and Media Section

Carl Willner Trial Attorney, Telecommunications and Media Section 

Drew Austria Paralegal, Telecommunications and Media Section 

Ashley Becker Paralegal, Telecommunications and Media Section

Gabriel Borman Paralegal, Telecommunications and Media Section

Ryan Shallard Paralegal, Telecommunications and Media Section

Inquiries concerning this report should be directed to:

Nancy M. Goodman, Chief, Telecommunications and Media Section

(202) 514-5621 or 2007TelecomSymposium@usdoj.gov

ACKNOWLEDGMENTS

The Department of Justice thanks the speakers who participated in the Symposium and

all those who submitted written comments for their thoughtful and informed contributions.

The Department especially recognizes the contribution of the late Honorable Jane

Lawton as a speaker at the Symposium. Delegate Lawton was a dedicated public servant who

demonstrated exemplary energy and commitment to the development and implementation of

sound public policy.

TABLE OF CONTENTS

EXECUTIVE SUMMARY .................................................... i

INTRODUCTION ............................................................ 1

CHAPTER I: OVERVIEW OF SECTORS AND PARTICIPANTS .......................... 5

A. Video Programming Delivery Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

B. Local Telephone Services ............................................................. 9

C. Broadband Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

1. Wireless Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

2. Satellite Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

3. Broadband over Power Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

CHAPTER II: THE EFFECTS OF COMPETITIVE ENTRY ............................ 31

A. Economic Principles Affecting Facilities-Based Telecommunications Competition . . . . . . . . . . . . . . . . 31

1. The Classic Model of High Sunk-Cost Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

2. Sources of Competition: Deviations from the Sunk-Cost Model . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

3. Regulation and Other Factors that Can Lead to Imperfect Competition . . . . . . . . . . . . . . . . . . . . . . . 34

B. Consumer Benefits from Competition in Video and Local Telephony . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

1. Price Effects of Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

a. Video . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

b. Telephony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

c. Bundled Services Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

2. Non-Price Effects of Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

C. Challenges Faced by New Broadband Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

D. The Competitive Importance of Service Bundles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

E. Wireless Substitution for Wireline Telecommunications Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

CHAPTER III: OBSTACLES TO COMPETITIVE ENTRY ............................. 69

A. MVPD Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

1. Local Franchising Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

2. Access to Multiple Dwelling Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

3. Access to “Must-Have” Programming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

B. Local Telephone Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

1. Forbearance Proceedings and Requests to Deregulate Local Services . . . . . . . . . . . . . . . . . . . . . . . 77

2. Access to Customers in Multiple Dwelling Situations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

C. Broadband Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

1. Spectrum Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

2. Other Regulatory Issues Affecting Broadband Deployment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

3. Prices for Local Private Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

CHAPTER IV: OBSERVATIONS AND CONCLUSIONS FOR COMPETITION POLICY ........ 87

A. General Competitive Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

B. Barriers to Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

C. Proposals for Further Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

APPENDIX A: GLOSSARY OF TERMS USED IN THE REPORT ....................... A-1

APPENDIX B: SYMPOSIUM PARTICIPANTS ..................................... B-1

APPENDIX C: WRITTEN SUBMISSIONS ........................................ C-1

APPENDIX D: THE EVOLUTION OF WIRELESS TECHNOLOGY ...................... D-1

i

EXECUTIVE SUMMARY

Increasing competition in the telecommunications industry has produced substantial

benefits for consumers, and has the potential to generate even greater benefits in the future. 

Companies that once provided voice telephony or video services alone are increasingly

competing against each other across a wide variety of products. Cable companies today offer

telephone services to more than 100 million U.S. households (or over 80 percent of households) 

and have upgraded their facilities to increase Internet broadband speeds and provide a wider

array of programming. At the same time, telephone companies are rapidly building and

expanding fiber-optic networks to provide a wide range of services to an increasing number of

customers, including multichannel video programming and increasingly robust Internet access. 

In addition, competition among providers of mobile wireless voice and data services is resulting

in rapidly rising access speeds, dramatically expanding the functionality of mobile devices, and

potentially altering the future competitive dynamic between wireless and wireline services. As

telecommunications firms expand their offerings, lines between once well-delineated industry

segments blur, and consumers see greater competitive options.

Antitrust will continue to play an important role in this process. Antitrust law protects

the competitive process, which in turn protects consumers. In the telecommunications industry,

the competitive process has helped generate innovation to bring consumers a wider range of

choices of products and services. The Department of Justice protects competition through its

roles as both enforcer of the antitrust laws and advocate for sound competition policy. The

Department’s competition advocacy is particularly important in the telecommunications

industry, where government regulations significantly shape the competitive landscape.

To enhance its ability to fulfill those responsibilities, in November 2007 the Department

hosted a Symposium focusing on competition among providers of video programming delivery,

local telephony, and broadband services. Industry executives, economists, analysts, and local

government officials participated at the Symposium and through written submissions, offering a

variety of perspectives. This report summarizes their views.

Chapter I provides an overview of developments in the three industry segments addressed

at the Symposium – video, telephony, and broadband. The most significant development in

video programming delivery is entry by telephone companies seeking to compete with cable and

direct broadcast satellite providers. Trends in local telephony include a decline in the number of

residential landlines, primarily as a result of consumers discontinuing second lines, and entry by

cable firms. Broadband services have experienced explosive growth. The number of homes

receiving broadband services increased twenty-fold between 2000 and 2007. Symposium

participants expected continued growth and competition among telephone providers, cable

companies, and other technologies, including wireless services.

Following an overview of economic principles affecting telecommunications

competition, Chapter II addresses the competitive effects of the industry’s changing dynamics. 

There was broad consensus at the Symposium that competition provides consumers with

significantly more choice today than they have had in the past: more providers, greater variety
ii

in video entertainment, and a wider selection of devices to access the Internet. Participants

addressed challenges faced by new broadband entrants and technologies and other issues

important to competition in telecommunications, including the competitive effects of bundled

discounting (the practice of offering a bundle of services at a price lower than the combined

price at which each item in the bundle is offered on a stand-alone basis), the degree of

competition between wireline and wireless telephone services, and the effect of new competition

on price.

Chapter III discusses potential obstacles to entry. Poorly designed regulations have the

potential to deter entry and harm consumers. Symposium participants discussed specific

regulatory issues affecting each of the three segments, as well as whether conduct by incumbent

providers is deterring entry.

Chapter IV discusses the Department’s future competition advocacy and enforcement

activities. Mergers, unilateral conduct, and concerted action in the telecommunications industry

all can raise competitive concern, and the Department remains committed to monitoring the

industry vigilantly, investigating alleged antitrust violations, and enforcing the antitrust laws

against anticompetitive practices harming consumers. In its enforcement decisions, the

Department will continue to rely on evidence of actual market conditions and take into account

changing industry dynamics.

The report concludes with several proposals for further action:

C In assessing the legality of conduct in the telecommunications industry under the

antitrust laws, the Department will continue to give particular attention to the effects

of convergence and increasing substitution among services.

C To aid its ability to enforce the antitrust laws in the telecommunications industry

efficiently and effectively, the Department will continue to monitor industry trends

and developments. Because effective review requires reliable data, however, the

Department recommends that regulators review and, where appropriate, improve the

way they collect and report data to capture the effect of changes that are blurring lines

between formerly distinct industry sectors.

C Increased efforts to obtain relevant data and further refine economic analysis would

advance the Department’s ability to evaluate competitive conditions. Potential

subjects of future study include review of the competitive implications of bundled

pricing, substitution patterns, and quality-adjusted pricing trends.

C In its role as advocate for sound competition policy, the Department will continue to

seek the removal of regulatory barriers that unreasonably impede competition.

The Symposium advanced the Department’s understanding of the complex competitive

forces at work in the telecommunications industry, furthering its ability to make sound, proconsumer enforcement decisions and to fulfill its duty to advocate sound competition policy

more effectively. The Department also hopes that this report will serve as a valuable reference.
1

 In this report, the term “telecommunications” encompasses voice telephone services, services providing

multiple channels of video programming such as cable television, and high speed data services that are commonly

referred to as “broadband.” A glossary of technical terms used in this report is provided in Appendix A.

2 See United States v. American Telephone & Telegraph Co., 552 F. Supp. 131 (D.D.C. 1982), aff’d sub

nom. Maryland v. United States, 460 U.S. 1001 (1983). 

3

 Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996), codified at 47 U.S.C. § 151

et seq.

4

 “Wireless” services are delivered to the customer using radio spectrum: electromagnetic waves

propagated through space on specific frequencies. This spectrum is used in various forms of communications,

including with cellular telephones and other wireless devices as well as in television and radio broadcasting. 

“Fixed” wireless refers to technologies that are limited to serving a customer at a particular location, while “mobile”

wireless refers to technologies that a customer can continue to use while moving about, such as cellular telephone

technology. In contrast, “wireline” or “landline” services (these terms are used in the report interchangeably)

connect to the customer by physical means (such as a copper loop, coaxial cable or fiber) and are by definition fixed,

since the wireline cannot follow a moving customer.

1

INTRODUCTION

Telecommunications services1 – which allow consumers to communicate through

traditional voice conversations and by sending and receiving data and other information,

including video, from an ever-widening array of sources – are a critical component of the U.S.

economy. The telecommunications industry has experienced significant technological,

economic, and regulatory changes since the breakup of the Bell System in 19842

 and passage of

the Telecommunications Act of 1996 (“1996 Act”).3

 Many of these changes have been

beneficial for consumers and competition. Technological development has increased rivalry

among providers of traditional telephone and video services, while also bringing widespread

access to more advanced telecommunications services (such as mobile data and broadband

Internet access). Cable television providers now offer residential voice telephone services

throughout much of the United States, and some telephone carriers have begun to compete with

incumbent cable systems and satellite-based providers in the delivery of multichannel video

programming. There is also widespread discussion of other possible alternatives for the delivery

of broadband to consumers, including use of mobile and fixed wireless services4

 and broadband

over power line. Moreover, voice telephony, broadband, and multichannel video programming

are frequently being offered to consumers as bundles, often at discounts from stand-alone service

prices.

In the decade since the passage of the 1996 Act, federal laws and government policy

increasingly have favored the provision of telephone services and delivery of multichannel video

programming on a competitive basis, which generally represents the best method of ensuring that

consumers receive low-priced, high-quality products and services, greater choice among

providers, and continuing innovation. However, not all consumers have access to competitive

alternatives, nor are all benefitting from new technologies or the entry of new providers. 

Concerns have been expressed about remaining barriers to entry into the delivery of

telecommunications services. Such barriers – whether arising from regulatory restrictions, the
5

 The Symposium record, including agenda, presentations, and written submissions, is available on the

Department's website at http://www.usdoj.gov/atr/public/hearings/telecom2007/index.htm.

6

 A list of the participants in the hearings, along with their affiliations at the time of their participation, is

provided in Appendix B.

7

 A list of the entities that submitted written comments is provided in Appendix C.

8

 U.S. Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines (rev. ed. Apr. 8, 1997)

(“Horizontal Merger Guidelines”), available at http://www.usdoj.gov/atr/public/guidelines/hmg.pdf.

9 See, e.g., Complaint, United States v. WorldCom, Inc., No. 1:00-CV-01526, ¶ 57 (D.D.C. filed June 26,

2000) (alleging wireless phones are not a close substitute for long distance calls originating from wireline phones).

10 Id. at ¶¶ 50-56, 80-86 (alleging, among others, product markets of domestic and certain international long

distance services).

11 See, e.g., Complaint, United States v. Echostar Communications Corp., No. 1:02-CV-02138, ¶¶ 30-

31(D.D.C. filed Oct. 31, 2002) (alleging that each residence constitutes a separate geographic market, but

aggregating for ease of analysis residences that face the same choice of providers); Complaint, United States v.

Verizon Communications Inc., No. 1:08-CV-00993, ¶ 15 (D.D.C. filed June 10, 2008) (alleging that the United

States comprises numerous local geographic markets for mobile wireless telecommunications services).

2

conduct of established providers, or inherent economic and technical limitations – may tend to

restrict the number of competitors for these services.

To better understand these issues and help inform its enforcement efforts, in November

2007 the Department hosted a public Symposium in Washington, D.C.5 The Symposium

covered a wide range of topics, such as the impact of convergence among traditionally distinct

lines of activity (such as video delivery, landline telephony, and wireless services), the

competitive importance of service bundles, and the existence of regulatory and other obstacles to

competitive entry. Participants included industry executives, economists, analysts,

representatives of industry associations, and local government officials.6 In addition, the

Department requested and received comments from the business community and other interested

parties.7

One objective of the Symposium was to enable industry participants to present

information about developments in the industry that could impact future enforcement decisions

and/or competition policies. The Department analyzes mergers using the framework outlined in

the Horizontal Merger Guidelines,

8

 which provide a methodology for defining relevant product

and geographic markets. In past merger investigations involving telecommunications services,

the Department concluded that services delivered by wireless technologies were not close

economic substitutes for wireline services9 and that some types of telecommunications services

(such as local, long distance, and international telephony) were separate product markets10 even

though they might be marketed to consumers in a package. In addition, many geographic

markets have been defined to be local, as opposed to national or regional.11 Because of the

rapidly changing telecommunications landscape, including the advent of new technologies and

services, expansion by existing providers into new geographic areas and services, and changes in
12 For example, the Department has advocated regulatory and legal changes that will make entry into video

programming delivery and telephone services more likely. See, e.g., Comments of the U.S. Dep’t of Justice,

Proposed Modifications to the Application Form for Approval of Authority to Offer, Render, Furnish or Supply

Telecommunications Services to the Public in the Commonwealth of Pennsylvania, Pa. Pub. Util. Comm’n, Docket

No. M-00960799 (filed Mar. 27, 2007) (“DOJ Pennsylvania PUC Comments”) (recommending reform of

Pennsylvania’s procedures for certification of competitors to provide facilities-based telephony services in rural

areas to promote more rapid entry); Ex Parte Submission of the U.S. Dep’t of Justice, In the Matter of

Implementation of Section 621(a)(1) of the Cable Communications Policy Act of 1984 as amended by the Cable

Television Consumer Protection and Competition Act of 1992, FCC MM Docket No. 05-311 (May 10, 2006) (“DOJ

Cable Ex Parte Submission”) (requesting the FCC to address what would constitute an “unreasonable refusal” by a

local franchising authority to award a competitive video franchise, and expressing concern about certain demands

made by these authorities). Other actions taken by the Department to promote competition and remove barriers to

entry are referenced on the Symposium website.

3

how consumers purchase these services, when evaluating future mergers the Department will

need to assess whether these past conclusions continue to be true.

Another objective of the Symposium was to help inform the Department about industry

trends and the views of industry participants and observers, thereby enhancing the Department’s

ability to advocate sound competition policy in the telecommunications industry. The

Department plays an important role in the United States as an advocate of sound competition law

and policy before courts and in consultation with government agencies and legislatures.12 The

information obtained through the Symposium will help the Department evaluate the current roles

of the various telecommunications providers, examine potentially emerging technologies, and

continue the process of monitoring competition and the need for, or impact of, deregulation in

telecommunications markets.

This report analyzes and synthesizes the Symposium statements and submissions in an

effort to consider how future enforcement decisions and/or competition policies may be

influenced by developments in the industry. The report is divided into four chapters.

Chapter I provides an overview of telecommunications sectors and participants. Chapter

II addresses several issues related to the effects of entry by new providers on consumers,

including impact on price and quality, prospects for future broadband competition, the effects of

bundling services, and wireless substitution for wireline services. Chapter III explores potential

obstacles to entry for various types of providers. Chapter IV offers conclusions and

recommendations.

12 Press Release, F.C.C., FCC Adopts 13th Annual Report to Congress on Video Competition and Notice of

Inquiry for the 14th Annual Report, FCC MB Docket Nos. 05-255, 06-189, 07-269, at 3 (Nov. 27, 2007) (“FCC

Press Release on Thirteenth Annual MVPD Report”). Approximately 13-14 percent of TV households received only

over-the-air television broadcasts. Id.

13 Other MVPD service providers include telephone companies, broadband service providers (“BSPs”),

wireless cable (multichannel multipoint distribution service or “MMDS”), Satellite Master Antenna Television

(“SMATV”), C-band providers, and utilities.

14 Subscriber totals for DBS services grew to 30.8 million as of the first quarter of 2008. See Press Release,

DISH Network, DISH Network Reports First Quarter 2008 Financial Results, May 13, 2008, available at

http://dish.client.shareholder.com/releasedetail.cfm?ReleaseID=309956 (13.8 million subscribers as of end of 1st

Quarter 2008); Press Release, DIRECTV Group, The DIRECTV Group Announces First Quarter 2008 Results, at 3,

May 7, 2008, available at http://files.shareholder.com/downloads/DTV/328103421x0x193985/

58be3faf-803f-4ef5-b350-10e42e33552c/DTV_News_2008_5_7_General_Releases.pdf (“DIRECTV 1st Q Press

Release”) (17 million subscribers as of end of 1st Quarter 2008). See infra this chapter for the most current

subscriber estimates for telephone companies and subscriber shares for cable companies.

5

I. OVERVIEW OF SECTORS AND PARTICIPANTS

A. Video Programming Delivery Services

According to the Federal Communications Commission (“FCC”), 95.8 million

households, or almost 87 percent of the 110.2 million U.S. households with televisions,

subscribed to a multichannel video programming distribution (“MVPD”) service in 2006.12

MVPD providers include: (1) the incumbent cable television companies, each franchised to

serve a distinct geographic area; (2) the two direct broadcast satellite (“DBS”) service providers,

DirecTV, Inc. and Echostar Communications Corp. (dba “DISH Network”), which have been

providing nationwide service for approximately 15 years; and (3) a mix of smaller wireline,

wireless, and satellite dish-based service providers operating in various geographic areas. The

following table summarizes the nationwide subscriber totals and shares that were reported by the

FCC as of June 2006. Due to the dynamic nature of this industry, these shares may not

accurately reflect the current or future significance of any provider.

Table 1: MVPD Provider Subscriber Totals and Nationwide Shares

Type of Provider Subscribers in U.S. Nationwide Aggregate Share

Cable TV Incumbents 65.3 million 68.2%

DBS Service Providers 27.8 million 29%

Others13 2.5 million 2.6%

Source: FCC Press Release on Thirteenth Annual MVPD Report

More recent data suggest that cable’s share of subscribers decreased slightly after 2006,

while the number of DBS subscribers continued to grow, as did the number of video customers

served by local telephone companies.14 Many of the alternatives to cable and DBS currently

have limited geographic availability. The relatively small nationwide aggregate shares do not
15 Thorne, Symposium Transcript (“Tr.”) at 17. (All references to transcript pages refer to the Symposium

transcript unless otherwise noted.) This total investment figure is exclusive of the amount Verizon is saving from

avoidance of maintenance costs on its legacy copper plant. Id.

16 Twelfth Annual Report, In the Matter of Annual Assessment of the Status of Competition in the Market

for the Delivery of Video Programming, FCC MB Docket No. 05-255, 21 FCC Rcd 2503, 2508 (rel. Mar. 3, 2006)

(“FCC Twelfth Annual MVPD Report”).

17 Written Comments on Behalf of Verizon Communications Corp., for inclusion in the 2007 DOJ

Telecommunications Symposium, Nov. 20, 2007, at ii, 1 (“Verizon Submission”). 

18 Supplemental Submission of Verizon, re: 2007 DOJ Telecommunications Symposium, Feb. 19, 2008, at

9 (“Verizon Supp. Submission”).

19 Id. See also Letter from Hal J. Singer, President, Criterion Economics, L.L.C., to Yvette Tarlov,

Antitrust Division, U.S. Dep’t of Justice, re: Questions for Panel 1, Jan. 7, 2008, at 2 (“Singer Supp. Comments”)

(noting that six months after Verizon’s entry into Keller, Texas, nearly one-third of Verizon’s telephony customers

had signed up for Verizon’s video service).

20 Verizon Supp. Submission, at 9 (citing R. Dezego et al., Bank of America, Battle for the Bundle: 3Q07

Wrap Up at 18 (Nov. 20, 2007)). 

6

The most significant development in

MVPD is the entry of the ILECs.

reflect the considerably larger market shares individual providers may have in the geographic

areas where they operate.

The most significant development in

regard to MVPD in the past three years is

entry by the principal local telephone

companies. Although incumbent telephone

companies still account for only about 1.5 percent of all nationwide MVPD subscribers, the

number of subscribers will increase as the telephone companies deploy their video-capable

networks in additional areas of their service regions. Where incumbent local exchange carriers

(“ILECs”) have entered, they have often achieved considerable success.

Verizon Communications, Inc., for example, is spending $23 billion to roll out its fiberto-the-home (“FTTH”) network, “FiOS,” over which it delivers MVPD service as well as

telephony and broadband Internet access.15 Verizon began offering service in Keller, Texas, in

September 2005.16 Since then Verizon has gradually rolled out its FiOS service in sixteen states

throughout its local telephone service area. It is projected to reach 18 million homes and

businesses by 2010.17 By the end of January 2008, Verizon had approximately one million FiOS

video customers, representing 17 percent of the six million homes to which it then marketed its

video service.18 In the areas where Verizon has been marketing its FiOS video service the

longest, its penetration rate (the percentage of customers to whom a service is available that

subscribe to the service) is as high as 30 percent.19 Analysts predict that 25 percent of customers

that can subscribe to Verizon’s FiOS service will do so by the end of 2009.20

AT&T, Inc. is deploying a hybrid FTTH and fiber-to-the-neighborhood or node

(“FTTN”) network over which it offers MVPD and other services to residential customers under
21 Nat’l Telecomm. & Info. Admin., Networked Nation: Broadband in America 2007, at 25 (Jan.

2008)(“NTIA Broadband Report”).

22 NTIA Broadband Report, at 25, 34; AT&T Says Costs Rise for TV System’s Launch, WALL ST. J., May 8,

2007, at B4.

23 NTIA Broadband Report, at 25.

24 AT&T, 2007 Annual Report (2008), at 4, available at http://www.att.com/Investor/ATT_Annual/

downloads/07_ATTar_FullFinalAR.pdf.

25 Press Release, AT&T, AT&T Ramps Revenue Growth, Delivers Strong First-Quarter Results, Apr. 22,

2008, available at http://www.att.com/gen/press-room?pid=4800&cdvn=news&newsarticleid=25526.

26 AT&T Satisfied with Progress in Video Rollout, COMM. DAILY, Feb. 28, 2008, at 9-10.

27 FCC Twelfth Annual MVPD Report, 21 FCC Rcd at 2563.

28 Report and Order and Notice of Proposed Rulemaking, In the Matter of Implementation of the Cable

Television Consumer Protection and Competition Act of 1992: Development of Competition and Diversity in Video

Programming Distribution: Section 628(c)(5) of the Communications Act: Sunset of Exclusive Contract

Prohibition, FCC MB Docket Nos. 07-29, 07-198, 22 FCC Rcd 17,791, 17,806-07 (rel. Oct. 1, 2007) (“FCC

Exclusivity Sunset Report & Order”), appeal docketed, Cablevision Systems Corp. v. FCC, No. 07-1425 (D.C. Cir.

filed Oct. 19, 2007).

29 FCC Twelfth Annual MVPD Report, 21 FCC Rcd at 2563.

30 Canfield, Tr. at 117; see also Nat. Telecomm. Coop. Ass’n, NTCA 2007 Broadband/Internet Availability

Survey Report, at 4, 12 (Sept. 2007), available at http://www.usdoj.gov/atr/public/workshops/telecom2007/

submissions/228008.htm (“NTCA Broadband Survey”) (reporting that out of the 63 percent of NTCA survey

7

the brand name “U-Verse.”21 AT&T reportedly plans to spend between $4.5 and $6.5 billion on

U-Verse to reach 17 to 18 million households by the end of 2008.22 As of the third quarter of

2007, it already passed about 5.5 million households with U-Verse services (that is, had facilities

in place to make services available at those locations).23 AT&T intends to reach 30 million

homes by the end of 2010.24 By the end of the first quarter of 2008, AT&T’s total number of UVerse TV video subscribers reached 379,000, putting AT&T on track to reach its target of one

million subscribers by the end of 2008.25 On average, AT&T has achieved a 7.3 percent

penetration rate for video three to six months after entry, and a 13.4 percent video penetration

rate one year after entry, in the areas where it provides video service.26

Qwest Communications International Inc. and a number of smaller ILECs offer, or plan

to offer, MVPD service over their existing infrastructures using very high-speed digital

subscriber line (“VDSL”) or asymmetric digital subscriber line (“ADSL”) technologies, or over

fiber networks using Internet protocol.27 As of 2007, Qwest provided MVPD services to nearly

60,000 customers in Arizona, Colorado, Nebraska, and Utah,28 using both hybrid fiber-coaxial

and FTTH networks.29

Rural ILECs are also entering the video business. The National Telecommunications

Cooperative Association (“NTCA”), a trade association for rural local telephone companies,

believes that 63 percent of its members already offer video.30 This figure includes telephone
respondents offering video, 72 percent were offering cable TV, 37 percent were offering Internet protocol-based

television (“IPTV”) and 4 percent were offering DBS). 

31 See Section 652(a)-(d) of the Telecommunications Act of 1996, codified at 47 U.S.C. § 572, requiring

separation of the incumbent telephone and cable systems in the same geographic area, with exceptions for rural areas

or areas with few subscribers.

32 Canfield, Tr. at 117-18.

33 These companies typically have built new networks in areas already served by incumbent cable

companies and provide video, voice telephony, and broadband services. BSPA members include Everest

Connections, Hiawatha Broadband, Knology, PrairieWave Communications, RCN, and SureWest Communications. 

Written Comments, Broadband Service Providers Association (BPSA), for inclusion in the 2007 DOJ

Telecommunications Symposium, Nov. 29, 2007, at 2 n.1 (“BSPA Submission”).

34 BSPA Submission, at 9. All BSPs, including non-BSPA members, were reported by the FCC as having

1.4 million subscribers as of June 2006. FCC Press Release on Thirteenth Annual MVPD Report, at 3.

35 FCC Press Release on Thirteenth Annual MVPD Report, at 3.

36 Wireless cable (also known as MMDS) system operators use radio frequencies to transmit video

programming and broadband services to residential subscribers. Wireless cable systems require an unobstructed

line-of-sight from the subscriber’s premises to the transmitting tower, limiting the usefulness of this technology to

certain regions of the country. The FCC has found that wireless cable systems provide video competition “only on a

limited basis.” FCC Twelfth Annual MVPD Report, 21 FCC Rcd at 2565. Wireless cable is distinct from video

programming offered by commercial mobile radio services and other providers through wireless handheld devices,

such as cell phones. 

37 SMATV system operators receive programming via a satellite dish placed atop multiple dwelling units,

such as apartments and condominiums, as well as multiple tenant units, such as hotels and office buildings. The

programming is distributed to subscribers throughout the building by wire. FCC Twelfth Annual MVPD Report, 21

FCC Rcd at 2564.

38 FCC Press Release on Thirteenth Annual MVPD Report, at 4 (reporting that the number of private cable

or SMATV subscribers was about 900,000 in 2006, a decline of ten percent from 2005, whereas the number of

subscribers to wireless cable had dwindled to 100,000 in 2006, from a peak of 1.2 million in 1996).

8

incumbents that own the incumbent cable provider in the same area and, thus, are not video

entrants.31 The NTCA believes that those members without any video plans primarily serve lowpopulation rural areas where they do not face competition from cable providers.32

Broadband service providers33 (such as wireline overbuilders) currently pass 4.1 million

households. Members of the Broadband Service Providers Association (“BSPA”) currently have

1.2 million customers, 89 percent (or nearly 1.1 million) of which subscribe to video services.34

This number represents slightly more than one percent of the FCC’s total of all nationwide

MVPD subscribers.35

In contrast to wireline, usage of older technologies – such as wireless cable36 and

SMATV private cable systems37 – continues to decline, accounting for about one million

subscribers combined in 2006.38 Usage of C-band or large home satellite dish services similarly
39 C-band home satellite dishes, sometimes referred to as “backyard dishes,” typically measure six to ten

feet in diameter. They receive C-band signals from satellites that operate in the fixed satellite system (“FSS”)

frequencies. These FSS satellites are distinguishable from the broadcast satellite system (“BSS”) satellites operated

by the DBS companies, DirecTV and Echostar, which broadcast on different frequencies and require a much smaller

dish. As of June 2005, a total of 206,358 households were authorized to receive service via C-band or backyard

satellite dishes, a decline of 38.5 percent from 2004. FCC Twelfth Annual MVPD Report, 21 FCC Rcd at 2544.

40 No subscriber numbers for utility-provided video services are reported in the FCC data. It is not clear

how comparable these utility video services are to the services of cable, DBS, telephone companies, and BSPs,

although the FCC has classified them as MVPD. As of 2005, 102 public power entities in the United States were

reportedly offering some type of video service. FCC Twelfth Annual MVPD Report, 21 FCC Rcd at 2507.

41 Comments of the Nat’l Cable & Telecomm. Ass’n, In the Matter of Review of the Commission’s

Program Access Rules and Examination of Programming Tying Arrangements, FCC MB No. 07-198, at 3 (filed Jan.

4, 2008) (“NCTA Program Access Comments”).

42 This number is larger than shown on Graph 1 because it reflects more recent estimates of more than 1.4

million video subscribers for telephone companies and 1.1 to 1.3 million video subscribers for BSPs, along with the

1.2 million subscribers for all other MVPD technologies (SMATV, wireless cable, and C-Band) identified by the

FCC.

43 FCC Exclusivity Sunset Report & Order, 22 FCC Rcd at 17,827-28, n.277. These include sixteen of the

top 50 most-populated DMAs, including New York, Philadelphia, Boston, Tampa-St. Petersburg, Seattle, ClevelandAkron, Orlando, Pittsburgh, Baltimore, San Diego, Hartford-New Haven, Columbus, Milwaukee, HarrisburgLancaster, Pennsylvania, Norfolk-Portsmouth-Newport News, Virginia, and Las Vegas. Id.

44 Report and Order and Further Notice of Proposed Rulemaking, In the Matter of Exclusive Service

Contracts for Provision of Video Services in Multiple Dwelling Units and Other Real Estate Developments, FCC

MB No. 07-51, 22 FCC Rcd 20,235, 20,251 (rel. Nov. 13, 2007) (“FCC MDU Exclusivity Report & Order”).

9

continues to decline.39 All these alternative technologies in combination accounted for only

about one percent of MVPD subscribers. Some electric and gas utilities also provide video

services on a limited basis.40

The development of competitive video alternatives over the past decade has been

significant. In 1996, only one out of ten customers purchased MVPD services from a competitor

to the incumbent cable television operator. Today, that number is one out of three.41 See Graph

1 – Shares of MVPD Households Served by Competing Technologies. However, the non-DBS

alternatives to cable television still account for less than four percent of MVPD subscribers, or

only about 3.7 to 3.9 million subscribers.42 While cable television’s market share has fallen to 67

percent, cable’s share of MVPD subscribers still exceeds 75 percent in 52 out of 210 Designated

Market Areas (“DMAs”).43 In November 2007, the FCC concluded that “[i]ncumbent cable

operators are still by far the dominant force in the MVPD business, with . . . the ability to impose

steadily rising prices.”44

B. Local Telephone Services

Prior to the 1996 Act, local exchange telephony was a legal monopoly in many states;

however, the market-opening provisions of the 1996 Act and regulation by the FCC and the

states have fostered the development of substantial competition in many local voice markets.
Graph 1

Shares of MVPD Households Served by Competing Technologie

(June 1997 - June 2006)

0%

10%20%30%40%50%60%70%80%90%

100%

Cable Subscribers DBS Subscribers 

Cable Subscribers 87.1% 85.3% 82.5% 79.8% 77.5% 75.9% 73.6% 71.6% DBS Subscribers 6.9% 9.4% 12.5% 15.7% 18.7% 20.8% 22.7% 25.1% Other Subscribers 6.0% 5.3% 5.0% 4.5% 3.8% 3.3% 3.7% 3.3% 

Jun 1997 Jun 1998 Jun 1999 Jun 2000 Jun 2001 Jun 2002 Jun 2003 Jun 2004 

* Other Subscribers consist of BSP, MMDS, SMATV, Home Satellite Dishes, telephone companies and other video subscribers.Eighth Report, In the Matter of Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, FCC CS Docket No. 01-129, 17 

14, 2002); Id., MB Docket No. 02-145, 17 FCC Rcd 26901, Ninth Annual Report (rel. 2002); Id., MB Docket No. 03-172, 19 FCC Rcd 1606, Tenth Annual Report (re

Matter of Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, FCC MB Docket No. 04-227, 20 FCC Rcd 2755 (rele

Docket No. 05-255, 21 FCC Rcd 2503, Twelfth Annual Report (rel. 2006); see Press Release, MB Docket No. 06-189, FCC Press Release on Thirteenth Annual MVPD 
45 In its public reports, the FCC must aggregate data to preserve the confidential information of the

reporting firms, so FCC data cannot be used to evaluate the market position of individual competitors, but only

broader categories of providers. 

46 Industry Analysis and Tech. Division, Wireline Competition Bureau, F.C.C., Telephone Subscribership

in the United States, at Table 1 (August 2008) (“FCC Telephone Subscribership Report”).

47 Industry Analysis & Tech. Division, Wireline Competition Bureau, F.C.C., Local Telephone

Competition: Status as of December 31, 2007, at Table 2 (Sept. 2008) (“FCC Local Telephone Competition

Report”). It is not possible to provide a precise number or percentage of wireless-only households as of 2007

because the FCC data on the total of residential landlines in use in 2007 include both primary and secondary lines

and do not provide a separate figure for non-primary lines in use, as is available for years up to 2006. Because of

these second lines, the wireless-only households in 2007 were likely slightly larger than the difference of 18.3

million, or 16 percent, between the total of landlines and the total of telephone households. See infra Chapter II.E

for more current estimates of the percentage of wireless-only households.

48 These totals include both primary lines and the smaller number of second lines still in use.

11

The most significant development in residential local telephone service competition has been

entry by cable operators and other facilities-based landline providers, through the offering of

either stand-alone cable telephony or bundles of telephony, video, and broadband Internet

access. At this time, most of this competition is provided by the cable companies, whose entry is

generally limited to the video franchise areas where they own networks.

The FCC collects information from both ILECs and competitive local exchange carriers

(“CLECs”) on the number of lines they serve, and also collects data on the number of wireless

subscribers. This information helps to identify broad market trends and track nationwide share

shifts from the incumbent providers to competition.45

FCC data show that, as of March 2008, 95.2 percent of U.S. households (or 112.2 million

households) purchased some type of telephone service.46 More than 80 percent of those

households had telephone service provided over a landline connection as of December 2007;47

the remainder depended solely on wireless phones. The following table shows the distribution of

residential landlines in the United States between the ILECs and CLECs.

Table 2: Residential Telephone Landlines as of December 200748

Type of Provider Numbers of Lines Share of Lines

ILECs 81.8 million 87.2%

CLECs 12.1 million 12.8%

Source: FCC Local Telephone Competition Report, at Table 2.

CLEC figures include all non-ILEC companies that are certified by regulators to provide

local telephone services, including cable companies. CLECs’ shares vary significantly from one

local area to another; however, figures for localities are not publicly available. The FCC’s

statewide figures show wide variation in CLECs’ shares by state for both business and
49 FCC Local Telephone Competition Report, at Table 8.

50 The total for residential landlines in 2001 is based on Industry Analysis and Tech. Division, Wireline

Competition Bureau, FCC, Trends in Telephone Service, at Table 7.4 (Aug. 2008) (“Telephone Trends”), and the

total for residential landlines in December 2007 is based on FCC Local Telephone Competition Report, at Table 2. 

It is necessary to use two different sources to analyze the decline in residential landlines because, before 2005, the

FCC Local Telephone Competition Report classified small business lines as residential, but from 2005 onward

categorized them as business lines and excluded them from the residential totals. In contrast, Table 7.4 in Telephone

Trends consistently included only actual residential lines in its total. As of 2005, the data in both sources became

consistent, but the FCC Local Telephone Competition Report provides more up-to-date data than Telephone Trends.

51 The number of non-primary residential lines peaked in 2001 at 26.3 million. By 2006, it had fallen by

more than half, to 10.5 million. Telephone Trends, at Table 7.4. This loss of 15.8 million non-primary lines from

2001 through 2006 accounts for most of the loss of 27.3 million residential landlines during the same period of time,

from the peak of 127.3 million. Id. The FCC Local Telephone Competition Report, at Table 2, shows a larger

decline in residential landlines over the same period, from 142.8 million to 101.4 million. The difference between

the figures is mainly attributable to the reclassification of small business lines from residential to business lines after

2004.

52 See infra Chapter II.E for a discussion of substitution between wireless and wireline services.

53 FCC Local Telephone Competition Report, at Table 2. Part of this reported decline – over three million

lines – is due to the shift of CLEC small business lines from the residential to the business category in the FCC’s

data, but most of it – over five million lines – represents actual losses of customers. From June 2005 to December

2007, after the shift of the small business lines had already been made, the CLECs lost 4.2 million residential lines,

from 16.3 million down to 12.1 million. They lost another 1.1 million before the small business lines shift occurred,

from 20.9 million in June 2004 down to 19.8 million in December 2004. Id. 

12

residential customers, ranging from a high of 48 percent in Rhode Island to a low of eight

percent in New Mexico.49

There have been three very significant trends in landline residential telephone service

over the past several years. The first is the decline in the number of residential landlines from

the peak of 127.3 million in 2001 to 93.9 million by the end of 2007.50 See Graph 2 – Number of

Residential Switched Access Lines (ILECs and CLECs). Most of this decline reported in FCC

data is attributable to consumers discontinuing second lines for various reasons.51 For example,

broadband services like DSL that can run over a consumer’s primary telephone line without

precluding its simultaneous use for voice telephony are increasingly being used for Internet

access instead of narrowband telephone connections. A smaller part of the decline is attributable

to consumers relying on only wireless telephones (“cutting the cord”).52

The second trend has been the overall decline in the share of residential landlines served

by the CLECs, down from a peak of 15.4 percent in June 2004 to 12.8 percent in December

2007.53 See Graph 3 – Percent of End-User Residential Switched Access Lines Served by ILECs

and CLECs. This decline is largely attributable to FCC regulatory changes that removed the

right of CLECs to obtain switch ports as unbundled network elements (“UNEs”) at Total

Element
Graph 2

Number of Residential Switched Access Lines

(ILECs and CLECs)

(December 1992 - December 2007)

0

20406080

100120140

ILECs and CLECs

ILECs and CLECs 99.3 101.8 105.1 108.1 111.1 114.7 117.1 122.7 126.4 127.3 120.5 118.1 113.9 

Dec 

1992

Dec 

1993

Dec 

1994

Dec 

1995

Dec 

1996

Dec 

1997

Dec 

1998

Dec 

1999

Dec 

2000

Dec 

2001

Dec 

2002

Dec 

2003

Dec 

2004

Access Lines (in millions)

* Access Lines are represented in millions.* Data through December 2006 is taken from Industry Analysis and Technology Division, Wireline Competition Bureau, Federal Communications Commission, Trends 

7.4 (August 2008).* Data for December 2007 is taken from Industry Analysis and Technology Division, Wireline Competition Bureau, Federal Communications Commission, Local TelephDecember 31, 2007, at Table 2 (September 2008).
Graph 3

Percent of End-User Residential Switched Access Lines 

Served by ILECs and CLECs

(December 1999 - December 2007)

0%

10%20%30%40%50%60%70%80%90%

100%

ILECs 97.7% 96.8% 95.5% 94.5% 93.4% 92.2% 89.8% 88.0% 86.4% 84.6% 85.0% 85.4% 87.2% 8CLECs 2.4% 3.2% 4.6% 5.5% 6.6% 7.8% 10.3% 12.0% 13.6% 15.4% 15.0% 14.6% 12.8% 1

Dec 1999 Jun 2000 Dec 2000 Jun 2001 Dec 2001 Jun 2002 Dec 2002 Jun 2003 Dec 2003 Jun 2004 Dec 2004 Jun 2005 Dec 2005 Jun 

* Small business lines were included in residential access line calculations through December 2004.Industry Analysis and Technology Division, Wireline Competition Bureau, Federal Communications Commission, Local Telephone Competition: Status as of December 

2008).
54 Order on Remand, In the Matter of Unbundled Access to Network Elements; Review of the Section 251

Unbundling Obligations of Incumbent LocaI Exchange Carriers, FCC WC Docket No. 04-313 & CC Docket No.

01-338, 20 FCC Rcd 2533 (rel. Feb. 4, 2005) (“TRRO”), petition for review denied, Covad Communications Co. v.

FCC, 450 F.3d 528 (D.C. Cir. 2006). Switch port elements were mainly used for providing residential service as

part of a combination of unbundled loop and switch port elements, also known as UNE-Platform (“UNE-P”).

55 Although the increase in the CLECs’ share of residential lines as shown in Graph 3 is relatively small,

more recent cable telephony data, as discussed infra, show that the number of subscribers to cable telephony services

is rising. The earlier declines in CLEC residential customers have not been paralleled in the CLECs’ business line

totals. CLEC business lines declined by only one million in the two years following the shift of small business lines

from the residential to the business category in the FCC Local Telephone Competition Report data, from a peak of

17.6 million in June 2005 to 16.7 million in December 2007. FCC Local Telephone Competition Report, at Table 2.

56 FCC Local Telephone Competition Report, at Table 3. The remaining 22.3 percent of CLEC lines in

December 2007 involved resold services obtained from the ILECs, an increase from the lowest reported share of

15.4 percent for resold lines in June 2004. Id.

57 Id. at Table 5. 

58 Id. at Table 4. In December 2007, the ILECs reported providing a total of 9.6 million UNE loops to the

CLECs. Of these loops, 4.1 million were provided without switching, down only slightly from the peak total of

about 4.5 million in December 2005, while 5.5 million loops were provided with switching, reduced by over twothirds from the peak total of 17.1 million in June 2004. Id.

15

Due to expansion by cable companies,

most consumers a choice of at least two

providers for local voice services.

Long Run Incremental Cost (“TELRIC”) prices.54 However, the trend appears to be reversing

with the growth of cable companies providing voice telephone service as CLECs.55

The third trend has been a gradual shift in the mix of CLEC residential lines, from UNEbased lines to facilities-based service, reflecting the considerable success of cable entry into

residential telephony. In December 2007, 40.8 percent of all CLEC lines, including residential

and business lines, were facilities-based, up sharply from the lowest reported facilities share of

23.4 percent in June 2004. At the same time, 36.8 percent of CLEC service still depended upon

ILEC unbundled network loops, down sharply from the peak of 61.3 percent in June 2004.56 See

Graph 4 – Modes of Entry Used by Competitive Local Exchange Carriers (CLECs). As of

December 2007, most of the 12.1 million CLEC residential lines (up to 8.4 million) were

provided over coaxial cable (that is, by cable companies).57 An increasingly large share of the

remaining UNE-based lines is provided through partly facilities-based arrangements, using a

CLEC switch combined with an unbundled loop obtained from an incumbent carrier 

46(“UNE-L”), rather than by use of a UNE-Platform combination.58

The cable operators appear to be well

positioned to offer facilities-based

competition to the ILECs in the local
Graph 4

Modes of Entry Used by Competitive Local Exchange Car

(December 1999 - December 2007)

0

5,000

10,00015,00020,00025,00030,00035,000

Access Lines (in thousands)

Resold LinesUNEs (Unbundled Lines Served by CLECs)Facilities Based LinesTotal CLEC End-User Lines

Resold Lines 3,513 4,315 4,114 3,919 4,250 4,478 4,677 4,887 4,842 4,927 5,417 5,826 UNEs (Unbundled Lines Served by CLECs) 1,959 3,201 5,540 7,580 9,332 10,930 13,709 15,728 17,888 19,624 18,961 19,025 Facilities Based Lines 2,723 4,042 5,217 5,776 6,072 6,236 6,479 6,370 7,045 7,483 8,503 9,124 Total CLEC End-User Lines 8,194 11,557 14,871 17,275 19,653 21,645 24,864 26,985 29,775 32,034 32,881 33,975 3

Dec 

1999

Jun 

2000

Dec 

2000

Jun 

2001

Dec 

2001

Jun 

2002

Dec 

2002

Jun 

2003

Dec 

2003

Jun 

2004

Dec 

2004

Jun 

2005

* Access Lines are represented in thousands.Industry Analysis and Technology Division, Wireline Competition Bureau, Federal Communications Commission, Local Telephone Competition: Status as of December 31, 2

2008).
59 In considering petitions by the ILECs for relief from regulatory obligations, the FCC and state agencies

have relied on the existence of cable competition to justify partially granting the ILECs’ requests in some geographic

areas. See, e.g., Memorandum Opinion and Order, In the Matter of Petition of Qwest Corporation for Forbearance

Pursuant to 47 U.S.C. § 160(c) in the Omaha Metropolitan Statistical Area, FCC WC Docket No. 04-223, 20 FCC

Rcd 19,415, 19,430-31 (rel. Dec. 2, 2005) (“Omaha Order”), order modified, 23 FCC Rcd 1716 (Feb. 8, 2008);

Memorandum Opinion and Order, In the Matter of Petition of ACS of Anchorage, Inc. Pursuant to Section 10 of the

Communications Act of 1934, as Amended (47 U.S.C. s 160(c)), for Forbearance from Certain Dominant Carrier

Regulation of Its Interstate Access Services, and for Forbearance from Title II Regulation of Its Broadband Services,

in the Anchorage, Alaska, Incumbent Local Exchange Carrier Study Area, FCC WC Docket No. 06-109, 22 FCC

Rcd 16,304, 16,321-23 (rel. Aug. 20, 2007), order modified, 23 FCC Rcd 1716 (Feb. 8, 2008); Application of

Verizon Virginia Inc. and Verizon South Inc. For a Determination that Retail Services are Competitive and

Deregulating and Detariffing of the Same, Case No. PUC-2007-00008, Va. St. Corp. Comm’n, Order on Application

(Dec. 14, 2007) (“Virginia Order”); Application of Verizon Virginia Inc. and Verizon South Inc. For a

Determination that Retail Services are Competitive and Deregulating and Detariffing of the Same, Case No. PUC2007-00008, Va. St. Corp. Comm’n, Order on Reconsideration (Feb. 1, 2008) (“Virginia Reconsideration Order”). 

However, the existence of cable competition has not always been sufficient to grant relief. See Memorandum

Opinion and Order, In the Matter of Petitions of the Verizon Telephone Companies for Forbearance Pursant to 47

U.S.C. § 160(c) in the Boston, New York, Philadelphia, Pittsburgh, Providence and Virginia Beach Metropolitan

Statistical Areas, FCC WC Docket No. 06-172, 22 FCC Rcd 21,293, 21,304-05 (rel. Dec. 5, 2007) (“Six MSA

Order”).

60 Wilson, Tr. at 90; see FCC Telephone Subscribership Report at Table 1 for household totals.

61 Cable Telephony Tops the 13-Million Mark, IP DEMOCRACY, Mar. 5, 2008, available at

http://www.ipdemocracy.com/archives/002899cable_telephony_tops_the_13million_mark.php (13.3 million as of 4th

Quarter 2007, citing company reports and Emerging Media Analysis estimates); Cecelia Kang & Kim Hart,

Clearwire, Sprint Nextel Set Course for WiMax, WASH. POST, May 8, 2008, at D1-D2 (15 million).

62 Wilson, Tr. at 85-86.

63 Id. at 87-89.

64 Id.

17

exchange markets.59 Alexandra Wilson, of Cox Enterprises, Inc., reported that, according to the

National Cable & Telecommunications Association (“NCTA”), cable telephony is available to

around 100 million households (approximately 85 percent of the 118 million households

nationwide) and accounts for more than 12 million subscribers (approximately 11 percent of the

112 million households with telephone service).60 The cable companies are rapidly increasing

their telephony business. More recent reports give the cable companies as many as 13 to 15

million telephony customers.61 As of late 2007, Cox, the third-largest cable company nationally,

had nearly six million residential subscribers, including about 5.5 million video customers, 3.6

million broadband customers, and 2.3 million residential telephone customers, making Cox the

tenth-largest provider of telephone services in the United States.62 Cox has committed to

offering telephony and broadband services throughout its footprint. It added about 370,000

telephone subscribers in the twelve-month period ending November 2007.63 Currently, more

than 25 percent of Cox’s customers offered telephone service subscribe to its telephone service. 

The Cox customers who also take telephone services are much less likely to switch providers

(“churn”) than those taking only video.64
65 Cavalier was cited in the FCC’s TRRO as an example of a CLEC successfully using the UNE-L strategy. 

TRRO, 20 FCC Rcd at 2646.

66 Stephen Perkins, Cavalier Telephone LLC, “Outline of Remarks,” 2007 DOJ Telecommunications

Symposium, Nov. 29, 2007, at 3 (“Perkins Presentation”).

67 Nomadic VoIP services are telephone services that use broadband but are offered by a provider that is not

providing the underlying broadband connection.

68 Lindsay, Tr. at 76-79.

69 Sean C. Lindsay, Qwest Communications International Inc., “Facilities-Based Competition in Mass

Market Telecom: A Period of Rapid Change,” 2007 DOJ Telecommunications Symposium, Nov. 29, 2007, at 7

(“Lindsay Presentation”).

70 Lindsey, Tr. at 79.

71 Canfield, Tr. at 116.

72 Id. at 115.

18

Stephen Perkins, of Cavalier Telephone LLC, presented information on the success that

his company has had in competing with incumbent telephone companies.65 Cavalier is a CLEC

that provides a bundle of voice, video, and broadband Internet access services to residential

customers using advanced DSL technology over copper loops leased as UNEs from the ILECs. 

This business model – employing DSL technology to provide services using the ILEC copper

loop together with the CLEC’s own facilities – may be one of the few possibilities for residential

wireline competition in places where cable companies or overbuilders have not built out

networks. According to Cavalier’s submission, it is the “[l]argest competitive local carrier

(non-incumbent, non-independent telco, non-CATV) in Virginia, Pennsylvania, and Michigan,”

with approximately 750,000 retail business and residential lines throughout its service area, the

large majority of which are residential.66

ILEC speakers argued that they faced competition from not only the cable companies and

CLECs but also wireless and nomadic Voice over Internet Protocol (“VoIP”) providers.67 Sean

Lindsay, of Qwest Communications International Inc., pointed to the significant decline in ILEC

access lines as evidence of extensive competition.68 Lindsay also contended that the availability

of a broadband Internet connection enables the customer to purchase nomadic VoIP telephony

from a wide range of providers in lieu of ILEC landline service.69 Given the difficulty of

determining which customers use VoIP services, Lindsay recommended focusing on “the

number of broadband lines in service, because as soon as you have a broadband connection, you

have the ability to receive VoIP telephony services.”70

Jill Canfield, of the NTCA, similarly asserted that cable voice telephony is the biggest

competitive threat to rural ILECs.71 The NTCA sees the competitive pressures for rural ILECs

as “very similar to any ILEC out there today,” with declining minutes of landline use and more

use of cell phones, together with increased emphasis on residential broadband connections.72
73 See infra Chapter II.E for a discussion of substitution between wireless and wireline services.

74 Wilkie, Tr. at 127; see also Simon J. Wilkie, Center for Communications Law and Policy, USC Gould

School of Law, “Economics of Entry and Telecommunications Regulation,” 2007 DOJ Telecommunications

Symposium, Nov. 29, 2007, at 3 (“Wilkie Presentation”).

75 Wilkie, Tr. at 129. Federal and state regulatory agencies have taken different views on the significance

of nomadic VoIP services when evaluating requests by ILECs to eliminate regulatory requirements. In a 2007

proceeding, the FCC declined to include in its analysis nomadic VoIP services that required the customer to

purchase a separate broadband connection because the record did not contain data sufficient to find these services

were close substitutes. Six MSA Order, 22 FCC Rcd at 21,305. Virginia’s regulator did take into account nomadic

VoIP services that offer telephone service connected to the public switched network where those services were

available and 75 percent of customers had subscribed to a broadband service. See Virginia Reconsideration Order at

8-14. However, Virginia’s regulator also found that the nomadic VoIP providers’ market shares were too small to be

considered serious statewide competitors. See Virginia Order at 23-24.

76 Wilkie, Tr. at 129.

19

The principal competitors providing

residential broadband services are the

incumbent telephone and cable companies.

Other speakers, however, raised concerns about whether wireless services, and nomadic

VoIP services that depend on landline broadband access for delivery to the customer, should be

considered to be competitive with landline access.73 As to VoIP, economist Dr. Simon Wilkie

pointed out that there is a “difference between telecom services [themselves] and access to those

services via a wire line or a cable loop. . . . In many cases, they are actually different

products.”74 In other words, even where there is competition at the service level, there still may

be no, or limited, competition for the access needed to reach consumers. The delivery of

nomadic VoIP services requires the customer to have a broadband connection. Many consumers

do not subscribe to broadband. In addition, a large number of broadband subscribers continue to

buy a local telephone connection because either they need it to support another service (such as a

security system) or they are unable to purchase a DSL connection without also paying for a local

line. Dr. Wilkie’s analysis suggests that it would be inappropriate to treat all broadband Internet

access services as part of the telephony market. He expressed doubt about the competitive

constraint provided by entry of nomadic VoIP providers,75 stating, “VOIP can't provide access

substitution because you need the access line still.”76

C. Broadband Services

The principal competitors in

providing residential broadband services

continue to be: (1) the incumbent telephone

companies, using either DSL over copper or

more advanced fiber networks (such as

Verizon’s FiOS); and (2) the incumbent cable companies, providing cable modem service over

hybrid fiber-coaxial cable. Broadband service was the first area in which the incumbent

telephone and cable companies competed substantially with one another. The aggregate

nationwide shares of residential broadband connections in the U.S. are nearly 51 percent for

cable modem services and more than 39 percent for DSL and fiber connections, the great

majority provided by the incumbent telephone companies. See Graph 5 – Residential High

Speed Lines (by type). These
Graph 5

Residential High Speed Lines (by type)

(December 1999 - June 2007)

0

5,000,000

10,000,00015,000,00020,000,00025,000,00030,000,00035,000,000

Cable ModemDSLFiberOther

Cable Modem 1,402,394 2,215,259 3,294,546 4,998,540 7,050,709 9,157,285 11,342,51213,660,541 16,416,36418,525,26521,270,15823,578,06025,7DSL 291,757 883,762 1,594,879 2,629,047 3,615,989 4,618,632 5,529,241 6,680,310 8,909,027 11,152,54413,119,32614,602,31217,4Fiber 1,023 325 1,994 2,623 4,139 6,120 14,692 16,132 19,830 22,719 34,959 83,293 213Other 50,189 64,320 102,432 182,165 194,897 202,251 256,978 288,786 341,864 387,563 422,623 428,367 532

Dec 1999 Jun 2000 Dec 2000 Jun 2001 Dec 2001 Jun 2002 Dec 2002 Jun 2003 Dec 2003 Jun 2004 Dec 2004 Jun 2005 Dec 

Number of Lines

* Other consists of Wireless, Satellite, Power Line and Other Lines.Industry Analysis and Technology Division, Wireline Competition Bureau, Federal Communications Commission, High-Speed Services for Internet Access: Status as of 

(Mar. 2008).
77 Cable companies continue to account for over 65 percent of MVPD service subscribers nationwide, while

ILECs account for over 80 percent of residential telephone landlines and likely around 70 percent of all households

with telephone service. See supra Chapters I.A and I.B, and infra Chapter II.E.

78 BSPs are similar to the incumbent telephone companies and cable companies in their network

technology, as they provide video, voice, and broadband services over the same landline facilities by deploying fiber

and coaxial cable. See supra Chapters I.A and I.B, and infra Chapter II.

79 Industry Analysis and Tech. Division, Wireline Competition Bureau, F.C.C., High-Speed Services for

Internet Access: Status as of June 30, 2007, at Table 3 (Mar. 19, 2008) (“FCC Broadband Report”).

80 The FCC reports data on broadband in terms of “high speed lines,” but this term is used broadly to

include not only actual wirelines but also wireless connections. Id. at 1-2 & n.1. The FCC’s data are based on the

number of total line connections rather than on the number of subscribers or households, which might have both a

wireline and a mobile wireless connection.

21

shares in broadband are considerably closer than the shares of cable and telephone companies

today for the provision of telephone and video services.77

Broadband services are also provided by the alternative landline networks of the BSPs,78

and by some partly facilities-based CLECs using unbundled copper loops obtained from the

ILECs. Fixed wireless broadband services and satellite services play a very limited role

nationwide, while the nationwide share of broadband over power line is insignificant. The

following table shows the nationwide residential broadband subscriber totals and shares by

different technologies, based on FCC data from June 2007.79

Table 3: U.S. Broadband Residential Line Totals and Nationwide Shares by Technology

Broadband Technology Total Residential Lines Share of Total Broadband

Cable Modem 33.3 million 50.6%

Services using copper loop

(mainly ADSL, others

including SDSL and

traditional wireline)

24.8 million

(of which 24.7 million use

ADSL) 

37.7%

Mobile Wireless 5.5 million 8.4%

Fiber 1.2 million 1.7%

Satellite 530,357 0.8%

Fixed Wireless 522,752 0.8%

Other (including broadband

over power line (“BPL”))

5,347 0.008%

Source: FCC Broadband Report, Table 3

Mobile wireless services are the fastest growing broadband segment.80 However, it is not

clear how closely such services compete with landline services on price, quality, and delivery

speeds. According to FCC data for all broadband connections, including residential and
81 Most mobile wireless services provided speeds exceeding 200 kbps in only one direction. Fixed wireless

service speeds mostly exceeded 200 kbps in both directions, though they were slower than 2.5 Mbps in the faster

direction. Id. at Tables 1 (for total mobile wireless) and 5 (for speeds by technology).

82 Id. at Table 5. Broadband services operate in two directions, an uplink to the network and a downlink

from the network, and the speeds of a broadband service for the two directions are often not symmetrical.

83 Id. at Table 3 & Chart 5.

84 The FCC estimated that DSL was available to 82 percent of all households served by ILECs, and highspeed cable service was available to 96 percent of all households served by cable companies at the end of 2007. Id.

at 3 & Table 14.

85 NTIA Broadband Report, at ii.

86 Canfield, Tr. at 114.

87 Id. at 111; see also Jill Canfield, Nat’l Telecomm. Coop. Ass’n, “Entry into Telecommunications: Rural

ILEC Perspective,” 2007 DOJ Telecommunications Symposium, Nov. 29, 2007, at 3 (“Canfield Presentation”);

Nat’l Telecomm. Coop. Ass’n, Foundation for Rural Service, 2007 Rural Youth Telecommunications Survey, at 14.

88 Only 20 percent of the rural youth households reported receiving video services from a cable company,

while 45 percent of these households get service via DBS and 14 percent from a telephone provider. Canfield, Tr. at

111-12.

89 Id. at 115; see also Canfield Presentation at 7.

22

There has been dramatic growth in the

number of broadband lines in use since

2000 – increasing from 3.1 million in 2000

to 65.9 million in 2007.

business, as of June 30, 2007, at least 73 percent of mobile wireless customers received highspeed services at the low end of the speed range.81 Fixed wireless customers mostly received

somewhat faster speeds than mobile wireless, and most customers of wireline services, primarily

cable modems and fiber, were already receiving services at speeds of 2.5 Mbps or more in at

least one direction.82

There has been dramatic growth in

residential broadband usage over the past

several years, from only 3.1 million

residential lines in June 2000 to 65.9 million

in June 2007,83 and services are now available

to the great majority of U.S. consumers.84

However, broadband penetration was estimated at only 50.8 percent of U.S. households

nationwide as of October 2007.85

The competitive landscape is different in many rural areas, as the rural telephone carriers

are the predominant providers of broadband, and cable plays a much smaller role. The NTCA

reported that nearly all of its members provide broadband Internet to at least part of their service

territories.86 Based on a NTCA survey, half of rural youths with an Internet connection in their

homes had DSL service, while only eight percent had a cable modem.87 This is presumably

attributable to the absence of cable in many rural areas.88 Although 87 percent of NTCA

members have reported facing broadband competition from at least one other provider, even in

the most sparsely populated areas,89 in many cases this competition probably is satellite-based or
90 Canfield, Tr. at 115-16.

91 FCC Broadband Report, at Table 1. For this report, the FCC defined high-speed lines as connections to

end-user locations that deliver services at speeds exceeding 200 kbps in at least one direction. Id. at 1, n.1. The FCC

Broadband Report’s purpose is to review the deployment of advanced telecommunications capabilities in the United

States and therefore does not evaluate whether the technologies reported are actually competing with each other for

consumers. It does not include information about the prices charged for such services nor the specific locations in

which each service is offered. Nor does it provide information about whether mobile wireless services, which were

offered at speeds that generally were lower than those provided by cable modem and DSL as of June 2007, were

effective competitors to DSL or cable modem services. Id. at Table 5.

92 Id. at Table 1. The FCC also reported that there were almost 70 million advanced service lines for

residential and business customers that delivered services at speeds exceeding 200 kbps in both directions. Of these

lines, 58 million were DSL or cable modem lines and about 9 million used mobile wireless technology. Id. at Table

2.

93 Id. at Table 1.

23

Wireless broadband services are

experiencing substantial growth, but these

services may not yet be effective

competitors to landline services because of

price and speed differences.

wireless, rather than cable. Canfield, of the NTCA, recognized that the competition faced by

rural ILECs is not evenly distributed geographically across their service areas. Most face

competition only in the cities and towns they serve, although 47 percent report having

competition for broadband throughout their entire service territories.90

It is unclear how much wireless and developing technologies will affect broadband

competition. Some providers are at an early stage of rollout geographically; others are evolving

technologically. The key issue is whether any of these technologies have advantages that will

enable them to compete effectively and profitably with the more established technologies. In the

past, some wireless and BPL technologies were unable to meet customers’ expectations as to

speeds and latency, or the technology required large capital investment that was difficult to

recoup. One question the Symposium sought to address is whether any of these technologies are

“ready for prime time.”

1. Wireless Providers

Some market observers believe that

wireless technology, in particular mobile

applications, holds the most promise of

becoming the third connection to consumers’

homes, giving consumers an alternative to the

current fixed wireline services. The

advantage of mobile wireless services is that

they can in theory be accessed anywhere that coverage is offered. Mobile wireless services

constitute the fastest growing segment of high-speed services for Internet access and accounts

for the most new broadband connections.91 As of June 2007, more than 62 percent of the

residential and business high-speed lines identified by the FCC in service were provided using

landline DSL or cable modems; of the remaining 37 percent of high-speed lines that used other

technologies, about 90 percent were using mobile wireless technologies.92 The number of

mobile wireless high-speed connections reported in service as of June 2007 was more than triple

the number reported a year earlier.93
94 See Appendix D for a complete description of the various wireless technologies.

95 Written Comments of Henry “Hank” Kafka on Behalf of AT&T Inc., for inclusion in the 2007 DOJ

Telecommunications Symposium, Nov. 29, 2007, at 1-2 (“AT&T Submission”).

96 See AT&T website, http://www.att.com/gen/general?pid=7493. Verizon has deployed an advanced

version of its Code Division Multiple Access (“CDMA”) technology known as Evolution Data Only (“EV-DO”)

Rev. A, which advertises typical download speeds of 600 kbps to 1.4 Mbps and typical upload speeds of 500-800

kbps, in 242 cities. See Verizon website, http://b2b.vzw.com/broadband/RevA.html.

97 Kafka, Tr. at 193-96; see AT&T website, http://www.att.com/gen/general?pid=7493 (for speeds offered

of 600 kbps to 1.4 Mbps).

98 AT&T Submission, at 7.

99 Id. The Telecommunications Industry Association (“TIA”) estimates that there are over 250 municipal

Wi-Fi networks being operated or developed in the United States. NTIA Broadband Report, at 21 (citing TIA, 2007

Telecomm. Market Review & Forecast, at 167 & Table IV-2.2 (“TIA Market Review”)).

100 AT&T Submission, at 7.

101 Id.

24

The Department invited a number of wireless providers to speak at the Symposium about

their plans to provide broadband services and their views about the current state of competition

between wireless technologies and DSL or cable modem services.

AT&T has the largest number of mobile wireless subscribers in the United States,

deploying technologies based on Global System for Mobile Communications (“GSM”).94 The

company has invested more than $18 billion over the last three years to increase the scope and

capabilities of its wireless networks.95 AT&T currently offers an advanced version of its GSM

technology known as High Speed Packet Access (“HSPA”) service in 265 geographic areas and

plans to extend coverage to nearly 350 areas by the end of 2008.96 AT&T expressed the view

that the downlink version of this service, High Speed Downlink Packet Access (“HSDPA”),

which is advertised to provide download speeds of 600 kbps to 1.4 Mbps, competes directly with

landline services.97

AT&T also has the largest national Wireless Fidelity (“Wi-Fi”) network. The company

provides or enables Wi-Fi access at more than 57,000 locations in more than 85 countries.98

AT&T has also partnered with municipalities to deploy wide-area public broadband Internet

access (“Municipal Wi-Fi”) networks that provide services for government and public safety

functions as well as the general public.99 AT&T’s first Municipal Wi-Fi deployment was in

Riverside, California. Wi-Fi networks are also planned for St. Louis, Missouri, and San

Antonio, Texas.100 AT&T’s W-Fi business models rely on advertising revenues for free basic

service, subscriptions for higher levels of service, and revenues from services offered to

enterprise customers.101
102 Id. at 8.

103 Id. at 8-9.

104 Kafka, Tr. at 189-91; AT&T Submission, at 9.

105 Press Release, Clearwire Corporation, Sprint and Clearwire to combine WIMAX businesses, creating a

new mobile broadband company, May 7, 2008, available at http://newsroom.clearwire.com/phoenix.zhtml?c=

214419&p=irol-newsArticle&ID=1141157&highlight= (“Clearwire Press Release”). The new venture is expected

to be valued at about $12 billion, including assets committed by both Sprint and Clearwire, and a total of $3.2 billion

in investments by others, including cable providers Comcast, Time Warner, and BrightHouse, as well as Google and

Intel. Sprint will own 51 percent of the new company, which will be called Clearwire and headed by Clearwire’s

CEO. See Sprint Nextel Corp. & Clearwire Corp., FCC Form 603 Application for Assignments of Authorization and

Transfers of Control, Ex. 1, at 1-12 (filed June 6, 2008) (“Sprint/Clearwire Transfer Application”). The venture will

have a large amount of 2.5 GHz spectrum contributed by Sprint and Clearwire, with an average of 151 MHz of

spectrum in each of the top 100 U.S. markets, and at least 100 MHz on average in the next 100 markets. New

Wireless Venture See Drawing Scant Regulatory Scrutiny, COMM. DAILY, May 8, 2008, at 2-5.

106 Shen, Tr. at 201-04.

107 Id. at 210; Bin Shen, Sprint Nextel Corporation, “Introduction to Xohm,” 2007 DOJ

Telecommunications Symposium, Nov. 29, 2007, at 5 (“Shen Presentation”).

108 COMM. DAILY, Sept. 30, 2008, at 9.

109 Salemme, Tr. at 220-21; R. Gerard Salemme, Clearwire Corporation, “Delivering Personal Broadband

and the Mobile Internet,” 2007 DOJ Telecommunications Symposium, Nov. 29, 2007, at 6 (“Salemme

Presentation”); see also id. at 7 (map depicting Clearwire’s U.S. markets), id. at 9 (detailing Clearwire’s

international subscribers, covered POPs, and spectrum holdings).

25

AT&T has been exploring the use of Worldwide Interoperability for Microwave Access

(“WiMAX”) technology through trials in Riverside, California, St. Louis, and San Antonio.102

AT&T has deployed WiMAX technologies in areas where it does not provide DSL or other

broadband services, in Pahrump, Nevada, and several cities in Alaska. Many customers have

signed up for the service, and AT&T reported that the technology is working well.103 However,

the deployments are costly to build in areas with low population density.104

Sprint Nextel and Clearwire made separate presentations at the Symposium, although

they later announced that they will jointly develop a WiMAX network.105 Both companies

expressed the view that WiMAX offers a great opportunity and that there is sufficient demand

for a mobile wireless service to ensure success. Wireless broadband services will allow people

to expand their Internet experience from using a browser on a desktop PC or laptop to allowing

connections to kiosks and obtaining broadband Internet access via backseat entertainment

systems and portable multimedia players.106 At the time of the Symposium, Sprint Nextel had

started field testing service in its first two markets (Chicago and Baltimore/Washington).107 In

September 2008, Sprint Nextel launched commercial WiMAX service in Baltimore.108

At the time of the Symposium, Clearwire had wireless broadband networks operating in

more than 420 municipalities around the globe, covering more than 14.8 million people, with

350,000 customers, and more than ten percent penetration in each of its first 15 markets.109

Clearwire had completed trials of mobile WiMAX and had planned a commercial launch in the
110 Salemme, Tr. at 220.

111 Sprint/Clearwire Transfer Application, Exhibit 1, at 1, 19; see also Clearwire Press Release.

112 William F. Wallace, DigitalBridge Communications Corporation, “DigitialBridge Presentation,” 2007

DOJ Telecommunications Symposium, Nov. 29, 2007, at 2 (“Wallace Presentation”); Wallace, Tr. at 226-27.

113 Wallace, Tr. at 227-28; Wallace Presentation, at 2-3.

114 DigitalBridge website, http://www.digitalbridgecommunications.com/OurTowns/tabid/69/Default.aspx.

115 Wallace, Tr. at 231; Wallace Presentation, at 5.

116 Wallace, Tr. at 232; Wallace Presentation, at 6.

117 See FCC Broadband Report, at 4 (showing that satellite broadband serves at least one customer in 92

percent of U.S. zip codes at the end of June 2007).

118 WildBlue website, http://www.wildblue.com; Hughes Network Service website,

http://www.hughes.com; Skyway website, http://www.skywayusa.com. A representative of WildBlue spoke at the

Symposium. Inmarsat, through its Broadband Global Area Network, delivers satellite broadband access as a mobile

service. NTIA Broadband Report, at 22. Its service is substantially slower than the services offered by the other

providers. See id. at Table 5. Other satellite firms are planning to offer more robust satellite broadband services by

combining satellite with an ancillary terrestrial component. None of these companies currently offer service but plan

to do so in the next few years. See id. at 23.

26

first quarter of 2008.110 Prospects for the new Clearwire joint venture are discussed below, but

the joint venture expects its network to cover 120 to 140 million people by the end of 2010.111

William Wallace, of DigitalBridge Communications Corp., explained how his company

seeks to provide WiMAX services to underserved communities, typically with populations of

between 10,000 and 100,000, including some “vacation spots.”112 DigitalBridge has started with

fixed wireless broadband services, but envisions that PC cards, embedded chipsets, and roaming

agreements will allow it to offer mobile services.113 DigitalBridge offers services in 13

communities in five states.114 Because the company takes a regional approach, and because

Sprint Nextel and Clearwire have already been “seeding the market,” DigitalBridge was able to

secure the relatively modest $40 million in financing it needed to launch in 15 communities. 

DigitalBridge was able to outsource its back office systems (customer care, billing, and data

centers), creating a low-fixed-cost and scalable approach.115 DigitalBridge has already achieved

more than nine percent penetration in its first market (Rexburg, Idaho, with 21,000 POPs), after

only about six months and an investment of less than $260,000.116

2. Satellite Providers

Satellite broadband is one of the most widely available of the broadband technologies.117

There are currently at least three companies offering service using geostationary satellites –

WildBlue Communications, Hughes Network Services LLC, and Skyway, USA LLC.118

Satellite broadband use grew from less than 50,000 subscribers in 2004 to an estimated 700,000
119 Id. at 23 (citing TIA Market Review at 71 & Table II-2.36). The FCC figures for satellite broadband

access show about 669,000 subscribers as of June 2007. FCC Broadband Report, at Table 1.

120 FCC Broadband Report, at Table 1.

121 Monthly charges for services generally start at $50 to $70 per month for download speeds ranging from

500 kbps to 1 Mbps and increase for higher speed offerings. See generally NTIA Broadband Report, at Table 5,

citing Satellite Industry Association. Some providers offer lower speed plans at lower prices. See, e.g., Skyway

website, www.skywayusa.com/order.php (offering 256 kbps at $29.95/month, compared with 512 kbps at

$49.95/month).

122 Grayer, Tr. at 276-77; Brown, Tr. at 287-88, 291.

123 Grayer, Tr. at 277.

124 Brown, Tr. at 286.

125 Id. at 287.

126 Id. at 326.

127 Id. at 284.

128 Id. at 286-87. WildBlue equipment can be purchased for $299 with a one year commitment or $249

with promotional discounts. See http://www.wildblue.com/getWildblue/availability.jsp.

27

Satellite broadband services have been

attractive primarily to consumers who

cannot purchase DSL or cable modem

services, particularly rural residents.

by 2006.119 Despite this growth, however, less than one percent of all broadband users subscribe

to satellite service.120

Satellite broadband services are

generally more expensive, especially

considering equipment costs, and offer lower

speeds than cable modem and DSL

services.121 Because of its disadvantages,

satellite broadband services are mainly

attractive in low population density areas where alternative broadband suppliers are not

available.122 It is estimated that these areas comprise 10 to 15 percent of the country.123

WildBlue indicated that its target market is approximately eight million consumers living

principally in rural areas.124 Seventy percent of WildBlue’s customers live in an area where there

are 30 homes or fewer per square kilometer.125 David Brown, of WildBlue Communications,

Inc., believes that satellite services will continue to have a competitive advantage over other

broadband offerings in rural areas in the long term.126 WildBlue has experienced significant

growth in its first two years, signing up more than 275,000 customers.127

Brown stated that one factor that has led to the company’s success is that WildBlue was

able to substantially lower the cost of customer-premises equipment to well below $1,000 by

using a system that is based on the DOCSIS cable modem standard.128 Because the technology is

based on the same chip, WildBlue is able to take advantage of the economies of scale driven by
129 Brown, Tr. at 286-87.

130 Id. at 291-92.

131 Id. at 290.

132 Id. at 320.

133 Brown, Tr. at 288-89; Grayer, Tr. at 278. According to a trade journal report, WildBlue has made

additional capacity available since the Symposium. COMM. DAILY, Aug. 29, 2008, at 5-6.

134 Brown, Tr. at 292; Grayer, Tr. at 277-78 (satellite has latency disadvantage as to other broadband

services).

135 Brown, Tr. at 292.

136 Herron, Tr. at 293.

137 Grayer, Tr. at 279.

138 NTIA Broadband Report, at 26.

139 FCC Broadband Report, at Table 3.

140 One source estimated that by the end of 2006, there were 75,000 U.S. subscribers to BPL services.

Brendan Herron, CURRENT Group, LLC, “Broadband Overview,” 2007 DOJ Telecommunications Symposium,

Nov. 29, 2007, at 5 (“Herron Presentation”). TIA estimated 200,000 BPL subscribers in 2007, increasing to

700,000 by 2010. NTIA Broadband Report at 26 (citing TIA Market Review at 69). Another source predicted

28

the tens of millions of cable modems deployed.129 WildBlue also has been able to reduce the size

of its customer-premises equipment.130

A second factor in WildBlue’s success has been its use of distribution partners. The

company sells through 1,500 dealers around the country and has wholesale distribution

agreements with AT&T, DirecTV, DISH Network, and the National Rural Telecommunications

Cooperative.131 AT&T offers WildBlue in areas where its DSL service is not available.132

WildBlue’s biggest impediment to further growth is the lack of available capacity in

certain areas.133 The company continues to work on designs to improve the efficiency of its

satellites and reduce latency issues,134 while attempting to reduce the cost of its equipment and

service.135

3. Broadband over Power Line

BPL is a hybrid network that uses fiber or wireless facilities to connect to the electric

distribution grid and then rides on the medium and low voltage portions of the electrical grid to

provide broadband Internet access to homes.136 Although deployments of the technology have

been around for some time, BPL has not achieved much success.137 According to the United

Power Line Council, there are 35 BPL deployments in the United States ranging from pilot

projects to commercial deployments.138 The FCC estimates that as of the end of June 2007, there

were over 5,300 BPL customers.139 Other estimates are substantially higher.140
400,000 customers by the end of 2007, growing to 2.5 million by the end of 2011. NTIA Broadband Report, at 26

(citing C. Roden, FTTx and BPL: Analysis and Outlook, First Quarter 2007, Parks Associates, available at

http://www.parksassociates.com/research/reports/tocs/2007/bpl_fttx.htm (link to purchase report).

141 See Grayer, Tr. at 280.

142 Id.; see also NTIA Broadband Report, at 26. 

143 New Technologies, COMM. DAILY, Jan. 25, 2008, at 15. “A Smart Grid combines advanced sensing

technology, two-way high-speed communications, 24/7 monitoring and enterprise analysis software and related

services to provide location-specific, real-time actionable data to all departments in a utility.” Current

Communication website, http://www.currentgroup.com. This offers several advantages to utilities and the general

public even without broadband. Smart Grid systems can make electricity use more efficient by allowing better load

management, which can both preserve resources and cut pollution. The Electric Power Research Institute estimates

that distributing Smart Grid technologies throughout the United States could save five to ten percent of electric usage

and cut carbon dioxide emissions caused by electricity generation up to 25 percent. Herron, Tr. at 296. This

translates to ten percent overall reduction in carbon dioxide emissions nationwide. Id. at 297. Smart Grid also

allows a utility to improve the efficiency and reliability of its network by providing information about what is

happening on the grid, through such capabilities as advanced metering and detection of outages. Grayer, Tr. at 280-

81; Herron, Tr. at 297. In addition, the technology allows for the use of distributed grids that take advantage of other

sources of energy (such as solar power). Herron, Tr. at 298.

144 Herron, Tr. at 293.

145 Herron Presentation, at 4.

146 Herron, Tr. at 294.

147 Id. at 295.

29

Several reasons have been advanced for the failure of BPL to make more of an impact. 

First, BPL was not able to offer a service that was competitive in terms of technical capabilities

or price previously.141 However, newer BPL offerings support speeds as high as 10 Mbps, which

are comparable with most wireline broadband speeds. Second, utilities were not convinced that

BPL was a good investment given the cost to roll out a network and the need to compete for

subscribers against established broadband providers. The expected revenue from broadband

services alone was not enough to justify the cost of building a network.142 However, today

utilities that are upgrading to take advantage of Smart Grid technologies to manage the electric

grid may find it efficient to provide BPL service over their upgraded networks.143

According to Current Group, LLC, BPL has several advantages over other broadband

services. First, it uses the existing electrical wires that are connected to every home, eliminating

the need to construct “last-mile” facilities (the wireline connection to an individual customer’s

premises).144 Second, installation involves only plugging the modem directly into an electrical

outlet in the home. Neither additional wiring nor a technician visit is required.145 Subscribers

can move their Internet access to another room by unplugging the modem and connecting it to a

different outlet.146 Third, the service is near-symmetrical (upload speed is similar to the

download rate) which gives it an advantage for certain types of applications (such as file

sharing).147
148 Id. at 299.

149 Id. at 299-300. While this discussion focuses on Symposium participant Current Communications, other

companies – such as Ambient Corp., Communications Technologies Inc. (COMtek), International Broadband

Electric Communications, Inc. (IBEC), and MainNet Communications – also provide BPL services.

150 Herron, Tr. at 298-99.

151 Grayer, Tr. at 279.

152 DirecTV Weighs Impact of Clearwire-Sprint Alliance, COMM. DAILY, May 8, 2008, at 9.

30

Current has operated a BPL service for several years in Cincinnati in conjunction with

Duke Energy Corp. using an older technology.148 Approximately 20 percent of the households

passed buy the service even though it offers lower speeds than competitors and cannot provide

video or voice services that competitors offer. Current thinks that this is because customers like

the ease of use, symmetrical speeds, and the ability easily to move the service from room to

room.149

At the time of the Symposium, Current was deploying a network in the Dallas-Fort

Worth area for local utility Oncor. It expected to reach approximately 1.8 million homes in four

years.150 The service offered speeds up to 8 Mbps and was to be competitively priced.151 The

service was being offered on a retail basis and wholesale through DirecTV. However, Current

subsequently was reported to have abandoned its plans for providing BPL services in Dallas, and

sold its Smart Grid networking equipment to Oncor.152
153 Although this chapter provides some explanation of how the characteristics of an industry affect entry, it

does not address all factors that may influence competition. As Dr. Wilkie noted, further study would advance the

analysis of the complex telecommunications sector. Wilkie, Tr. at 125-26, 134-39 (effects of bundling and effects of

incomplete information are among the areas where economic theory needs further development).

154 See Wilkie, Tr. at 131-33. Dr. Wilkie refers to this scenario – entry being discouraged by the prospect

of intense post-entry competition – as the “dumb pipe paradox.”

155 See Jean Tirole, THE THEORY OF INDUSTRIAL ORGANIZATION, 209-11 (MIT Press, Cambridge

1988)(“Tirole”) (section discussing the Bertrand paradox); see also Dennis W. Carlton & Jeffrey M. Perloff,

MODERN INDUSTRIAL ORGANIZATION, 244-46 (HarperCollins College Publishers, New York, 2d ed. 1994)(“Carlton

& Perloff”). Competition here means that the firms in the market do not maintain prices above competitive levels

through coordinated behavior, in the form of either explicit agreements or tacit coordination. Coordination could

allow firms to recover much or all of their sunk costs, but at the expense of greater total costs. There may be

significant opportunities for such conduct in a duopolistic or oligopolistic market with high cost of entry. The

likelihood of successful coordination depends on a variety of factors, including product homogeneity, the stability of

market shares over time, and the ability to monitor prices charged by other firms in the market and punish deviations

from the coordinated level. See Horizontal Merger Guidelines § 2.1.

31

Telecommunications is a high-sunk cost

industry. A large portion of the cost of

deploying a wireline network is providing

last-mile connections, which are dedicated

to a specific household.

II. THE EFFECTS OF COMPETITIVE ENTRY

A. Economic Principles Affecting Facilities-Based Telecommunications Competition

Economic theory provides a framework for better understanding the cost and demand

conditions under which competition can develop in telecommunications markets.153

1. The Classic Model of High Sunk-Cost Industries

Dr. Wilkie provided the Symposium with an overview of certain economic principles

affecting telecommunications, including how the need to make high sunk cost investments and

the difficulties of recouping these costs have deterred entry. A large part of the cost of facilitiesbased entry is the cost of building the network, which is a sunk cost (the assets cannot be

redeployed for an alternative purpose if the business fails). In general, entry is unlikely to occur

where the sunk cost of entry cannot be defrayed by the revenue likely to be earned. It would

therefore be very difficult for a new facilities-based telecommunications company to enter and

compete successfully against incumbent providers if its product is identical to existing offerings

and it does not have significantly lower costs than the incumbent.154 This is because competition

tends to drive price down to the cost of producing the next unit of the product (marginal or

incremental cost), providing no opportunity to recoup large sunk costs.155 Competition between

the entrant and the incumbent could thus prevent the entrant from recouping the sunk cost of

building its network.

In addition, a very large part of the

cost of deploying a wireline

telecommunications network to serve

residential customers has been that of the

“last-mile” connections (such as the local

copper loops and coaxial cable drops) that
156 Construction of new loop facilities by an entrant raises the question whether the benefit the customer

receives from facilities-based competition is sufficient to justify the sunk cost of building duplicate facilities, only

one of which will be used to provide service. Duplicative facilities would not be an issue if the customer owned its

own connection infrastructure (that is, the “last mile” referred to above) and could make it available to the provider it

chose. Although this is the case in many industries with high sunk costs, it is not how the infrastructure has evolved

for most telephony and video networks.

157 See Wilkie, Tr. at 131 (discussing “natural monopoly” characteristics of telecommunications and

potential effects of “premature deregulation”).

158 See id. at 132.

159 From an economic standpoint, convergence can be seen as a very substantial reduction in the costs that

must be sunk in order to compete in another market. When these costs are low and entry reasonably can be expected

to increase the entrant’s profits, classic “Prisoner’s Dilemma” analysis indicates that firms will be drawn into new

competition with one another unless they agree – tacitly or expressly – not to compete by declining to enter each

other’s markets, or dividing customers, or jointly setting prices. See Carlton & Perloff at 254-56 (discussion and

example of the Prisoner’s Dilemma); Tirole § 6.5.1 at 258 (conditions in which cooperation may develop). Although

both firms might find it beneficial to mutually stay out of each other’s markets, such an agreement would be difficult

to enforce without regulatory restrictions on entry, and also likely would be per se illegal and subject to criminal

prosecution.

32

Today facilities-based competition is

emerging in part because of changes in

technology that allow companies to

provide multiple services over a single

connection and reduce the cost of

constructing last mile facilities.

allow each customer to access the network. These last-mile connections were dedicated to

providing service to a specific customer location, making it difficult, if not impossible, for a firm

to recoup its sunk costs if that customer canceled service.156 In addition, last-mile connections

were used to provide only a single service because of the state of technology and regulatory

policy. The traditional copper loop provided only telephone service, and the coaxial cable

provided only multichannel video service, with neither network serving as a substitute for the

other. Regulatory policy historically viewed each incumbent provider as a “natural monopoly”

subject to price regulation and protection from entry.157

2. Sources of Competition: Deviations from the Sunk-Cost Model

Facilities-based competition is

emerging today in telephony, video, and

broadband services. Legal prohibitions on

entry in telephone and cable markets have

been removed, and telephone networks have

been required to interconnect with

competitors to facilitate the necessary

exchange of traffic between subscribers of

different companies. Competition is more feasible because new technologies have both reduced

the sunk cost of installing last-mile facilities and allowed for the provision of multiple services

over the facilities, including new services (such as broadband Internet access).158

Development in technology has enabled providers to challenge other incumbents in

traditional markets.159 Cable companies have made significant investments to upgrade their

facilities to provide more advanced video, offer broadband with cable modems, and provide

telephony over what were historically one-way distribution networks. Although a few cable
160 Cox, for example, installed more expensive circuit switching in parts of its network to provide telephone

service even before VoIP technology became available, and still has those switches in its networks. See Wilson, Tr.

at 87-88.

161 Wilson, Tr. at 90.

162 See supra Chapter I.B (discussing the role of cable telephony).

163 To sustain facilities-based competition over the long run, however, providers must be able to earn a

margin of prices over average variable costs that is large enough to cover depreciation, so as to allow for the

replacement of infrastructure facilities of both networks.

164 “Passive optical networks” are fiber optical networks without active electronics (such as repeaters)

relying on passive optical splitters to deliver signals to multiple terminal devices. Use of this technology allows a

network to be built without incurring the substantial costs for active electronics found in other types of

telecommunications networks.

165 Wilkie, Tr. at 132.

166 Although wireless carriers do not invest in customer-specific facilities, they do invest substantial

amounts to build, maintain, and upgrade their networks. As of 2006 wireless carriers’ total annual capital investment

in the United States was nearly $28 billion. Telephone Trends at Table 17.6.

167 See infra Chapters II.C, II.E, and III.C.

33

companies offered telephone services using circuit-switched technology in limited areas,160 cable

telephony was limited until the advent of VoIP technology. Building on their preexisting

connections into customer premises and the cost savings enabled by VoIP technology, the cable

companies have made their telephone services available to a large number of U.S. households –

100 million – in the past few years.161 As a result, cable telephony has become the main

facilities-based alternative to the ILECs for residential consumers.162 The telephone companies

similarly have been able to use their last-mile copper loops to provide DSL broadband services

in competition with the cable companies. Limitations on the ability to use copper plant for video

and higher-speed broadband have resulted in some companies constructing fiber networks to

compete more effectively in providing these services.163

A second factor facilitating increased competition has been the overall reduction in costs

that must be sunk to construct customer-specific facilities. Dr. Wilkie observed that the level of

investment needed for a wireline connection to the home has fallen sharply, from approximately

$2,900 per household to as little as $700 per household now with passive optical networks,164

reducing the revenues needed for recoupment.165 This development has strengthened the

economic case for fiber-to-the-home.

In addition, wireless technologies are often more efficient to deploy than wireline

networks because wireless requires little or no investment in facilities dedicated to a specific

customer.166 A customer needs only a telephone or other device to be connected, and wireless

companies do not need to invest in the telephone until the customer signs up for service. The

ability of wireless services to compete with wireline services, however, may be significantly

affected by speed, quality, and the availability of spectrum.167
168 Differentiation can be in the quality of service (such as broadband speeds), pricing (such as flat fee

plans) or additional services (such as video-on-demand (“VOD”) or high definition (“HD”)).

169 These types of subsidies requiring a company to charge the same prices to customers located in different

geographic areas, even where a company might well choose for reasons of differing costs or other efficiencies to

charge different prices to these sets of customers, are known as “price averaging.” Subsidies can take many forms,

including explicit payments to fund telecommunications services to institutions (such as schools and libraries), and

the implied subsidies between high and low cost customers where price averaging requirements are imposed.

170 Hank Intven, Jeremy Oliver & Edgardo Sepulveda, TELECOMMUNICATIONS REGULATION HANDBOOK,

Module 6, Universal Service 6-14 (Hank Intven ed., World Bank 2000), available at http://cbdd.wsu.edu/edev/edp/

intven-2000b-universality.pdf.

34

As noted above, the tendency toward monopoly in industries with high sunk costs rests in

significant part on the assumption that competing firms would each produce the same product or

very close substitutes, so that competition would drive prices below the level needed by an

entrant to recoup its sunk costs. Entry is more likely, however, when providers can differentiate

their products, thus reducing the extent to which consumers view them as exactly the same,

allowing each firm greater ability to recoup its sunk costs.168 At the same time, competition

between differentiated products can still bring prices closer to marginal cost than with a

monopoly provider, if enough consumers find the products sufficiently substitutable.

Technological change has also created new services and improved the quality of existing

services, increasing value to consumers and potentially allowing new firms to enter. For

example, mobile wireless companies provide consumers with the advantage of being able to

communicate while away from home. Broadband Internet access services greatly increase the

value of both wireline and wireless networks as higher speeds permit new applications (such as

high quality streaming video and downloads of feature films). The ability to earn greater

revenue from a given investment makes it easier to recoup sunk costs.

3. Regulation and Other Factors that Can Lead to Imperfect Competition

There are other factors, in addition to consumer demand and the cost of deploying

networks, that can affect if and when firms enter and whether entry is economically efficient. 

One factor is the existence of regulation, which can affect both the ability of firms to enter and

the prices they can charge.

Local telephone services traditionally have been subject to regulation to achieve public

policy goals (such as ensuring that service is universally available at reasonable prices). To

provide affordable services to customers in high-cost (typically rural) areas, regulators have

helped the incumbent defray some of the costs of serving those areas. Subsidies of this sort have

not usually been funded out of traditional tax revenues. Instead, the subsidies have been funded

by an implicit tax on customers in other areas where the regulator allows the incumbent to

charge more than is needed to cover the relatively low cost of service.169 This kind of regulation

is still prevalent in many jurisdictions and it creates an opportunity for new entrants to target

areas where the incumbents are earning excessive profits (lower-cost areas) even though the new

entrant may not be as efficient as the incumbent.170 It may also deter entry in high-cost areas by

firms that may be able to serve those customers at a lower cost than the incumbents, because
171 The Department filed comments with the FCC discussing the effect of build-out requirements imposed

as part of the video franchising process, focusing on the economic effect of these requirements rather than whether

those requirements served some other social interest. DOJ Cable Ex Parte Submission, at 12-16 (encouraging the

FCC to address what would constitute an “unreasonable refusal” by a local franchising authority to award a

competitive video franchise and expressing concern about certain demands made by these authorities).

172 The prices of telecommunications services can be difficult for customers to compare and it is common

for different customers purchasing at the same time to be paying different prices for the same services (or for

services that seem very similar). This pattern of behavior would follow from consumers minimizing their own

search costs by only infrequently attempting to find a better price for telecommunications services. The economic

model of “viscous demand” (where most customers respond slowly to price changes) is developed in Roy Radner &

Thomas J. Richardson, Monopolists and Viscous Demand, 45 GAMES & ECON. BEHAV. 442-64 (2003). The

implications of “viscous demand” for competition can be significant. In such a model, the lag in customer response

to prices can lead to a firm retaining customers even if it would be more efficient for another firm to serve them –

diluting the incentives to compete on price, to fund entry, and even to make investments.

35

regulation has kept prices artificially low. For example, wireless technology may be the most

efficient way to provide service in rural areas, but wireline service is subsidized.

Regulatory policies may distort entry decisions in other ways. For example, requiring an

entrant to construct facilities to all of a particular geographic area may require it to serve areas

where there is insufficient demand or the cost of serving the area is too high to support two

firms. When faced with these types of demands, an entrant can either build out and incur higher

overall costs or forego providing services in a geographic area altogether, including those areas

where competitive entry would have been efficient.171

Telecommunications markets are also characterized by imperfect access to information. 

In the classic high sunk cost model, a firm that could only offer a product identical to an

incumbent’s would not choose to enter because its best price would be undercut or equaled by

the incumbent, and demand by informed customers would be insufficient to allow the entrant to

recoup its sunk costs. However, consumers sometimes are unaware of the terms offered by all

competitors, and offers are often complex and hard to compare.172 This may weaken incentives

for firms in the market to compete on price and distort incentives to enter or leave the market.

B. Consumer Benefits from Competition in Video and Local Telephony

The evidence indicates that there has been substantial entry in video and local telephony. 

Cable companies are able to offer telephone services to more than 80 percent of households. In

addition, cable companies face competition in the provision of MVPD services from DBS

providers, BSPs, and now telephone companies building fiber-based networks. Although the

degree and type of entry have varied from place to place, entry generally has resulted in

increased quality and wider choices for consumers. Consumers in many areas are offered faster

and better Internet broadband access and improvements in the quality and variety of video

programming. Companies are offering more HD and other channels, new equipment, and other

features designed to improve customer experience.

There was some dispute among Symposium participants over how and to what extent

prices for video services are being affected by competition. Studies of earlier entry by BSPs

indicate that BSP competition has provided a greater constraint on an incumbent cable
173 See Gov’t Accountability Off., Telecommunications: Direct Broadcast Satellite Subscribership Has

Grown Rapidly, but Varies across Different Types of Markets, GAO-05-257, at 33 (Apr. 2005) (“GAO 2005 Study”)

and Gov’t Accountability Off., Telecommunications: Wire-Based Competition Benefited Consumers in Selected

Markets, GAO-04-241 (Feb. 2004) (“GAO 2004 Study”).

174 Verizon also compared service offerings to illustrate that customers get a wider array of channels from

Verizon for the prices being compared.

175 Written Statement of The Honorable Kevin J. Martin, Chairman, Federal Communications Commission,

Before the Committee on Commerce, Science and Transportation, U.S. Senate (February 1, 2007), at 6.

176 Providers may raise prices after a promotional period upon entry. See Lawton, Tr. at 59-60; see also

Raclin, Tr. at 51 (referring to Verizon raising prices after entry).

177 Bundles of services are often priced at a substantial discount relative to the same services sold separately

from the same provider, but not necessarily lower than the best combination a customer might be able to put together

from different providers.

36

company’s video pricing than has satellite-based competition alone.173 Consequently, there is an

expectation that price competition will increase where facilities have been expanded or upgraded

to allow telephone companies to provide video. Verizon claimed this has been the case for its

FiOS service and offered comparisons showing that its price is lower than the incumbent cable

company’s in most, but not all, areas where it provided data.174 Other speakers pointed to rising

video prices and expressed doubt that entry by the ILECs is effectively constraining cable

companies. Related concerns have been raised by FCC Chairman Kevin J. Martin, who has

stated that “[t]he cost of basic cable services ha[s] gone up at a disproportionate rate – 38%

between 2000 and 2005 – when compared against other communications sectors.”175

Disagreement about the effect on prices of entry by new video providers is due in part to

the difficulty of making such assessments in light of pricing and quality variations. Competing

video service providers frequently offer different packages of regular and HD channels and

varying features (such as the ability to obtain movies on demand). Some customers may also

benefit from temporary price promotions.176 In addition, existing subscribers may pay higher

prices than new subscribers or subscribers who threaten to change providers. Customers also

typically can get discounts by agreeing to purchase bundles that include video, telephone or

broadband services or signing long-term contracts.177 Finally, any assessment of the effects of

entry needs to look not only at the magnitude of price changes, but also at how prices compare to

what consumers would have paid absent the new entry. Determining “but for” prices is

inevitably difficult and complicated by the fact that video price increases may be necessitated by

the increased cost associated with providing higher quality services.
178 See Wilkie, Tr. at 133-37. 

179 See id. at 125, 134-35, 137, 139-40. 

37

Consumers in many areas now have

additional choices for the provision of

telecommunications services, and

providers are competing by offering

subscribers more video channels and

features and higher quality services.

Even with this uncertainty about the

effect entry has had on prices, consumers

appear to be benefitting today from the

increase in the number of providers. The

extent and nature of these benefits may

depend on how competition evolves over

time. Facilities-based competition among

providers offering bundles of voice, video,

and broadband services is just beginning to develop, so predictions about its future impact can be

very sensitive to assumptions used in an economic model. One economist pointed out that some

of the assumptions typically used in modeling would not fit telecommunications. 

Telecommunications customers often stay with rates or plans that are not as advantageous, given

that customer’s usage pattern, as a more recent offer from its provider or others. In addition,

carriers acknowledge that customers who purchase bundles of services have lower churn rates

than other customers. To Dr. Wilkie, these observations suggest that consumer switching costs

may be an important factor in evaluating competition and that changes in providers’ offerings

can impact consumers’ switching costs.178 If these considerations are significant, then early

competition (arguably what can be observed today) may just be the carriers’ way of establishing

their relative positions so that, in the future, they may be able to take advantage of customers’

resistance to changing providers and limited competition. Such possibilities pose a problem for

regulators evaluating requests by industry participants to limit or remove existing regulations

based on an expectation that future competition will look much like it does today. Dr. Wilkie

proposed additional study to develop better models of competition that reflect the particular

characteristics of telecommunications consumers and the impact of bundling voice, video, and

broadband services.179

Because WiMAX systems and other new technologies are only beginning to be deployed,

it is not yet possible to evaluate how effective these services will be. The prospects of WiMAX

benefitting a substantial percentage of the population will depend on such factors as the ability to

keep costs low, the value that consumers place on mobility and the response of existing

providers. Satellite broadband is attractive primarily in rural areas, and providers do not position

their services to compete directly against cable and telephone companies.

1. Price Effects of Competition

a. Video

There was substantial disagreement among panel participants as to whether consumers

were seeing lower prices as a result of the telephone companies’ entry into video services. John

Thorne, of Verizon, John Goodman, of the BSPA, and Dr. Singer asserted that consumers were
180 Verizon Submission, at 4-5; Goodman, Tr. at 31-32; BSPA Submission, at 5-6; Hal J. Singer, Criterion

Economics, “The Consumer Benefits of Telco Entry in Video Markets,” 2007 DOJ Telecommunications

Symposium, Nov. 29, 2007, at 5-8 (“Singer Presentation”); Singer Supp. Submission, at 3 & n.11.

181 Singer Presentation, at 2. The studies cited included: Robert Crandall et al., Does Video Delivered over

a Telephone Network Require a Cable Franchise? 59 FED. COMM. L.J. 251 (Mar. 2007) ($6 billion annual benefit);

Robert Crandall & Robert Litan, The Benefits of New Wireline Video Competition for Consumers and Local

Government Finances, Criterion Working Paper (May 2006) ($7.5 to $14 billion annual benefit); Thomas W.

Hazlett, George Mason Law & Economics Research Paper (2006) ($9 billion annual benefit); Jerry Brito & Jerry

Ellig, George Mason Working Paper (2006) ($8 billion annual benefit); and George S. Ford & Thomas M. Koutsky,

Phoenix Center Policy Bulletin (2006) ($8 billion annual benefit). Dr. Singer noted that these estimates are likely to

be conservative because they are based on evidence from BSP competition and the telephone companies are likely to

be stronger competitors than the BSPs. Singer Presentation, at 2.

182 Singer Presentation, at 4.

183 Singer Presentation, at 7 (citing Report on Cable Industry Prices, In the Matter of Implementation of

Section 3 of the Cable Television Consumer Protection and Competition Act of 1992, 21 FCC Rcd 15,087, ¶ 2

(2006), and GAO 2005 Study, at 33).

184 Singer Presentation, at 10 (citing T. Hazlett, George Mason Law & Economics Research Paper (2006)).

185 Id. at 8. The Bank of America study identified targeted price cuts of 43 percent by Cox, 29 percent by

Charter, and 38 percent by BrightHouse. Bank of America Equity Research, Battle for the Bundle: Consumer

Wireline Services Pricing, at 10 (Jan. 23, 2006) (surveying prices in Herndon, Va., Keller, Tx., and Temple Terrace,

Fl.). As Fairfax County pointed out, however, the Bank of America report is based on unadvertised promotional

discounts. Reply Comments of Fairfax County, Virginia, In the Matter of Annual Assessment of the Status of

Competition in the Market for the Delivery of Video Programming, Implementation of Section 621(a)(1) of the Cable

Communications Policy Act of 1984 as amended by the Cable Television Consumer Protection and Competition Act

of 1992, FCC MB Docket Nos. 06-189, 05-311, at 16 & n.39 (filed Jan. 16, 2007) (“Fairfax County Reply

Comments”). Fairfax County argues, therefore, that the report is not a good prognosticator of the long-term effects

of competitive entry on cable prices and/or future equilibrium pricing, a point Bank of America subsequently

conceded. Id. (citing Bank of America Equity Research, Battle for the Bundle: Consumer Wireline Services

Pricing, at 18 (Apr. 18, 2006)) (“As we wrote last quarter, we note that these are in many cases un-advertised offers

and we believe that they do not necessarily represent the equilibrium pricing that will prevail longer term in these

markets.”).

38

paying lower prices as a result of wireline competition in video services, citing various

government and industry studies.180

Dr. Singer presented several economic studies estimating annual benefits from telephone

company entry into video markets ranging between $6 and $14 billion based on evidence from

past entry by overbuilders.181 He also observed that cable price inflation appeared to be

slowing.182 Dr. Singer cited a 2006 FCC finding that cable rates were 17 percent lower in the

relatively few areas where a multisystem cable operator (“MSO”) faced competition from a

wireline overbuilder than elsewhere, and a 2005 Government Accountability Office (“GAO”)

study similarly finding that cable rates were 16 percent lower where an MSO faced wireline

overbuilder competition.183 Another 2006 study cited by Dr. Singer predicted a 14 percent

decrease in price from telephone company entry into video.184 In addition, Dr. Singer pointed to

a January 23, 2006, Bank of America report that found in areas where Verizon has been rolling

out its FiOS FTTH network, the cable MSOs responded with targeted price cuts of 28 to 42

percent.185
186 John Goodman, Broadband Service Providers Association (BSPA), “ Overview Presentation,” 2007

DOJ Telecommunications Symposium, Nov. 29, 2007, at 6 (“Goodman Presentation”) (citing GAO 2004 Study). 

These benefits from competition by broadband wireless providers are limited geographically, however, as less than 5

to 7 percent of local markets have such wireline competition. See Goodman Presentation, at 7; BSPA Submission, at

7.

187 Thorne also cited a variety of studies, including some of the studies cited by Dr. Singer and Goodman to

demonstrate the benefits of wireline competition on cable rates. See Verizon Submission, at 4-5. According to a

2005 FCC finding cited by Verizon, there were 27 percent rate reductions on a per-channel basis where wireline

competition was present compared with only 2.6 percent reductions from DBS competition. Id. at 5.

188 Verizon Supp. Submission, at Table 2 (comparing markets in Massapequa Park, NY (Cablevision),

Bethesda, MD (Comcast), Beaumont, CA (Time Warner), Virginia Beach, VA (Cox), Keller, TX (Charter), and

Tampa, FL (Bright House Networks). In Beaumont, Verizon’s price without HD reception is higher than Time

Warner’s price, but Verizon offers more channels.

189 Id., at 4-5,8; see also Singer Supp. Submission, at 1-2. Verizon explained that it plans on increasing the

number of HD channels it offers from 20 to 150 by the end of 2008. It also plans to expand its VOD offerings and

introduce a new interactive media guide.

190 Verizon Supp. Submission, at 5, 8.

39

Evidence was presented to support the

view that the entry into video services by

the ILECs has resulted in lower prices for

consumers, including pricing data

suggesting that Verizon offers packages

with more channels at lower prices than

the cable companies.

Goodman, of the BSPA, also cited evidence of the benefits of competitive wireline entry,

both in video and other services. Specifically, he pointed to a February 2004 study by the GAO,

which found that, in markets with wireline competition from second cable companies, rates for

video were between 15 and 41 percent lower than elsewhere and on average 23 percent lower. 

For broadband and telephony services, rates were on the order of five to 15 percent lower. 

According to this study, wireline competition led to increased penetration of both broadband

Internet service and enhanced digital television and improved customer satisfaction.186

Verizon provided examples of the

consumer price and quality benefits of video

entry based on its experience.187 Verizon

provided data showing that in five areas

where the company is operating, the 2008

price for its FiOS TV Premier digital package

(including the set top box) is two to nine

percent lower than the cable companies’

prices for packages with fewer channels.188

Although Verizon raised the price of its FiOS TV Premier service to $47.99 (not including the

set top box) for new customers beginning in January 2008, Verizon explained that the increase

reflected increased costs to Verizon and that nearly one million existing customers under

contract are not affected by the increase.189 Verizon also observed that its 2008 rate packages are

still priced below those of the cable companies, which have raised prices over the past three

years.190

Dr. Singer predicted positive welfare effects from Verizon’s entry even assuming that

Verizon increased the price of FiOS nationwide after the initial introductory period for new and

existing customers. He based this conclusion on evidence that Charter Communications Inc.

offered targeted rate cuts in anticipation of Verizon’s entry and Verizon’s prices for stand-alone
191 Singer Supp. Submission, at 1-2.

192 Id.

193 Raclin, Tr. at 50-51; Lawton, Tr. at 58-59; Fairfax County Reply Comments, at 10-11.

194 Raclin, Tr. at 50-51.

195 Id.

196 Lawton, Tr. at 54; Jane Lawton, Cable Communications Administrator, Montgomery County, Maryland,

“Local Franchising Supports Competition,” 2007 DOJ Telecommunications Symposium, Nov. 29, 2007, at 3-4

(“Lawton Presentation”); Statement of the Hon. Jane Lawton, Cable Communications Administrator, Montgomery

County, Maryland, “Local Franchising Supports Competition,” 2007 DOJ Telecommunications Symposium, Nov.

29, 2007, at 6 (“Montgomery County Submission”). This does not mean that all consumers in Montgomery County

have access to three competing wireline networks now, or will have access to four with Cavalier’s entry.

197 Customer safeguards at issue include protection from unreasonable contract terms and undisclosed fees

(such as charges to terminate service and forced arbitration to resolve disputes), loss of privacy, and lack of

guaranteed quality.

40

Others disputed whether consumers are

receiving price benefits, pointing to the

large price increases that both Verizon

and the cable companies have imposed in

recent years.

video service were below Charter’s at the outset.191 Dr. Singer suggested that Verizon’s

introductory price in Keller, Texas may have been set below Verizon’s profit-maximizing

price.192

Contrary views disputing the benefits

of facilities-based video competition were

offered by some, including incumbent cable

companies and two local franchising

authorities (“LFAs”).193 Grier Raclin, of

Charter, contended that because Charter faces

competition from a variety of sources in

addition to telephone companies, it does not react to new telephone company entry into video by

immediately dropping prices. Charter’s primary response to competitive entry has been to offer

bundles.194 Contrary to Dr. Singer’s assertion, Raclin explained that Charter did not drop its

MVPD prices in Keller, Texas, in anticipation of Verizon’s entry, but executed a previously

planned price increase.195

Fairfax County, Virginia, and the Honorable Jane Lawton, on behalf of Montgomery

County, Maryland, disputed whether competitive entry in video programming has yielded

substantial consumer benefits. Lawton described a competitive environment in Montgomery

County with four wireline video alternatives, including the incumbent Comcast, RCN (in the

market since 2000), Verizon (in the market since 2007), and Cavalier (in the process of entry).196

Lawton did not believe that wireline competition had constrained prices charged by incumbent

cable operators. According to Lawton, since Montgomery County granted competitive cable

franchises, stand-alone video programming prices have continued to rise, service complaints

have increased, customer safeguards have declined,197 and programming choices have not
198 Lawton, Tr. at 58-59; Lawton Presentation, at 7; Montgomery County Submission, at 6.

199 Lawton, Tr. at 60. According to Lawton, Verizon has a truck trip fee of $79.95, and RCN has a truck

trip fee of $49.95 to pick up the customer’s set-top box when service is cancelled. Alternatively, RCN allows the

customer to mail in the set-top box for $22 or deliver it out of state to one of their offices. Id. at 60.

200 Lawton, Tr. at 59.

201 Id.; Lawton Presentation, at 8; Montgomery County Submission, at 6 (citing price increase by Comcast

for preferred basic service tier from $36.85 to $60.35 between 2000 and 2007).

202 Lawton, Tr. at 59-60 (citing own experience of increase in bundled package price from $119 to $170);

Montgomery County Submission, at 6.

203 Fairfax County Reply Comments, at i, 2-4, 17-18, 21. 

204 Fairfax County Reply Comments, at iii, 5, 10, 18-24 (finding that during the initial period of head-tohead competition in parts of Fairfax County from January 1, 2006 to January 22, 2007, Cox’s monthly cable rates

rose more than 5 percent, while Comcast’s monthly cable rates rose almost 4 percent, and Verizon’s video service

rates rose more than 9 percent, while as of January 22, 2007 Verizon’s monthly rates were expected to rise to match

exactly the $47.98 rate of Verizon’s principal competitor Cox).

205 Id. at 25-26.

41

changed significantly.198 In addition, new fees continue to be added to customers’ bills.199

Citing FCC data, Lawton observed that cable prices overall rose six percent in 2006, twice the

rate of inflation. According to Lawton, since the first competitive MVPD provider entered

Montgomery County in 2000, the incumbent’s rates have risen 63.8 percent.200 Lawton also

noted that Verizon recently raised its rates by 11.6 percent over its introductory rate. She

reported that RCN increased rates by 5.6 percent in 2007.201 These reported rate increases

appear to relate to stand-alone video service prices, although Lawton also observed that

consumers have faced price increases as much as 40 percent at the end of their introductory

bundled discount period.202

Fairfax County has three wireline cable providers: two incumbents, Cox and Comcast,

which serve non-overlapping franchise areas, and Verizon, which is licensed to compete

throughout the county. Although Verizon’s FiOS service now reaches about one-third of all

households in the county, most households still do not have a competitive wireline choice.203

Verizon is offering consumers a stand-alone MVPD package with a larger number of channels

than the incumbents at a similar price. Fairfax County reported that Cox and Comcast have

increased their stand-alone video rates since January 2006 and that their rates have risen at a

faster rate than before competitive entry. However, Fairfax County was unable to determine

whether cable rates grew more slowly in areas where there was wireline cable competition.204

Fairfax County recognized that competition could bring consumers greater video choice and

improved customer service, with entrants choosing to compete on such features as more channels

and services, while matching the incumbent’s prices.205
206 Wilson, Tr. at 90-91 (citing Michael D. Pelcovits & Daniel E. Haar, Microeconomic Consulting & Res.

Assocs. Inc., Consumer Benefits from Cable-Telco Competition (updated Nov. 2007) (“Consumer Benefits from

Cable-Telco Competition”)). This report also found that consumers have already received benefits of $23.5 billion

from cable competition in voice telephony over the past four years and from the competitive response of the ILECs

over the past two years. Consumer Benefits from Cable-Telco Competition, at i.

207 Perkins, Tr. at 99-100; Perkins Presentation, at 3. Cavalier also competes with the ILECs by offering

unlimited long distance service for an additional monthly flat rate. See http://www.cavaliersalesagent.com.

208 Perkins Presentation, at 3.

209 Perkins, Tr. at 97-99; see Perkins Presentation, at 3.

210 Lindsay, Tr. at 75-77. “Regulatory arbitrage” refers to competitors taking advantage of regulatory

pricing requirements imposed on the incumbent (such as price averaging). Competitors may seek to serve only

customers that are less costly to serve or that generate larger volumes of service by offering them favorable rates,

while leaving the higher-cost or lower-volume customers to the incumbent. Subsidy structures can exist, for

example, if the incumbent’s rates are required to be lower for one class of customers and higher for another class

than would be justified by costs. Although the incumbent would still earn an overall profit from these rates in the

absence of competition, the subsidy inherent in the rates leads competitive entrants to target the group being charged

higher rates and ignore the lower-rate group.

211 Lindsay, Tr. at 82-83.

212 Verizon Submission, at 3-7.

42

b. Telephony

Several speakers presented evidence of consumer benefits from facilities-based telephony

competition at the Symposium. Wilson, of Cox, cited a 2007 NCTA study finding that

residential telephone consumers could save an average of $135 or more per year, and small

business customers could save $500 or more per year, as a result of cable competition. In

combination, on a nationwide basis, these two groups could save more than $100 billion over the

next five years.206 Perkins, of Cavalier, also discussed the consumer price benefits that could

result from “third-wire” CLEC competition.207 Cavalier’s price for a residential local telephone

service package is $24.95, which is competitive with the ILEC price.208 Cavalier has been able

to use the ILECs’ copper loops to provide IPTV to residential customers at attractive prices. 

Cavalier’s price for its triple-play bundle of $79.95 per month was lower than any of the prices

cited by incumbent telephone or cable companies for their triple-play bundles.209

On the other hand, Lindsay, of Qwest, expressed concern about new entrants taking

advantage of regulatory arbitrage and subsidy structures, and focusing on the high-value

customers.210 According to Lindsay, most of the new residential entrants in Qwest’s territory

price slightly below or even above Qwest’s regulated price for basic flat-rate, residential local

service.211

c. Bundled Services Pricing

According to Verizon, cable companies facing competition from FiOS have responded by

lowering their prices for the bundle of services that include telephony, broadband Internet access,

and cable services.212 For example, in Richmond, Virginia, Comcast reportedly cut the price for its
213 Id. at 7.

214 Id. at 6.

215 See Verizon Supp. Submission, at 7.

216 Id. at 6.

217 Verizon Submission, at 5 & n.20. The Charter triple-play bundle is offered at a uniform price of $99.97

per month for a twelve-month contract. Written Comments of Grier Raclin on Behalf of of Charter Communications

Inc., for inclusion in the 2007 DOJ Telecommunications Symposium, Nov. 29, 2007, at 3-4 (“Charter Submission”). 

Dr. Singer observed that consumers in Keller appeared to be selecting Verizon’s triple-play bundle over Charter’s

for non-price reasons, based on consumer surveys. Singer Supp. Submission, at 5.

218 Verizon Supp. Submission, at 7-8.

219 Id. at 12-13.

43

Customers who are willing to purchase

bundles and commit to long-term

discounts can take advantage of

substantial discounts off providers’ standalone prices.

own triple-play bundle by $31 just a few months before Verizon rolled out its FiOS service there;

in other areas where FiOS entered, Comcast refrained from raising prices as it had historically

done.213 In addition, Verizon reported that Comcast cut its prices in the Philadelphia area in

response to Verizon’s entry, reducing the price of its triple-play bundle by $25 per month in

August 2006 as Verizon prepared to enter, and then by another $27 in November 2006 after

Verizon’s launch.214

Verizon’s contract price for a triple-play

of premium video, broadband Internet service

with downstream speeds ranging from 5 to 20

Mbps, and telephone service with calling

features was set initially at between $99 and

$109 per month.215 Verizon reported that its

triple-play bundle typically is still priced lower

than comparable packages offered by the cable company incumbents.216 In Keller, Texas, the first

place Verizon began offering FiOS, the initial price of its “Everything” bundled package was 13

percent below that of the cable incumbent, Charter.217

Verizon offers two types of pricing discounts for its FiOS services, giving relatively

small discounts off stand-alone prices to consumers who purchase bundles on a month-to-month

basis, from zero to eight percent, and greater discounts for term contracts, ranging from 11 to 38

percent.218 Verizon explained that these discounts reflect the fact that the cost of installing fiber

to a residence is the same whether a customer purchases one service or three. In addition, many

of the costs Verizon incurs to provide its services are essentially fixed and do not vary as

Verizon adds additional customers onto the network.219

There was considerable dispute, however, about how the telephone and cable company

bundles compare on price. Based on data for a limited number of markets shown in the

following table, the prices for telephone company and cable company bundled offers appear to

be close, though there is substantial geographic pricing variation. The price ranges reflect in part

variations in the number of channels and features offered.
220 Verizon Supp. Submission, at 7, Table 3. Markets compared include Massapequa Park, NY

(Cablevision), Bethesda, MD (Comcast), Beaumont, CA (Time Warner), Virginia Beach, VA (Cox), Keller, TX

(Charter), and Tampa, FL (Bright House Networks). Verizon’s data for these markets do not state the period of time

in which the prices were offered in each market. In November 2008, Verizon announced it was changing the prices

of its service bundles with the new triple-play prices set between $79.99 to $119.99 per month. Verizon Heats up

Price War with Cheaper Bundles, COMM. DAILY, Nov. 4, 2008, at 8. Comparable information is not available on the

current prices of cable competitors.

221 Id.

222 Singer Presentation, at 5. Dr. Singer also found AT&T to have advantages over Time Warner in cable

channels and upstream Internet speeds. His data, like Verizon’s, do not indicate the period of time in which the

prices were offered in each market.

223 Singer Presentation, at 6. 

224 Fairfax County Reply Comments, at 11-16. Fairfax County looked at Cox prices effective as of January

2007, and Comcast prices effective as of October 2006, comparing them to Verizon prices both before and after the

price increase announced for January 22, 2007.

225 Id.

226 See id. at 13.

44

Table 4: Price Comparisons of Telephone Company and Cable Company Bundles

Source and Type of Prices Telephone Company Offers Cable Company Offers

Low End Overall (as reported by

Verizon for six markets)220 $99-108.98 (Verizon FiOS triple-play,24-month contract)

$89.85-$103.96 (promotional

triple-play) 

High End Overall (as reported by

Verizon for six markets)221 $125.97-$137.97 (Verizon FiOS tripleplay, no term contract)

$114.95-$153.97

(regular triple-play)

Dallas, TX (as reported by Dr.

Singer)222 $59 (AT&T, video and broadband

Internet access only)

$74.50 (Time Warner, video and

broadband Internet access only)

Fairfax County, VA (as reported

by Dr. Singer)223 $120 (Verizon FiOS triple-play) $156 (Cox triple-play)

Fairfax County, VA (as reported

by Fairfax County)224 $100.85-$133.80 (Verizon FiOS tripleplay, including digital programming,

before January 22, 2007)

$104.93-$137.88 (Verizon FiOS tripleplay following price increases)

$96.98-$133.98 (Cox triple-play,

+ $10.95 for digital

programming)

$140.52-$165.47 (Comcast

triple-play, but including

additional premium channels)

Fairfax County, Virginia, found that Verizon, Cox, and Comcast all offered discounted prices for

their bundles of video, broadband, and telephone services, compared to stand-alone prices. The

three Verizon FiOS bundled packages provide a $5 savings over stand-alone prices of the

services in the bundle, while the three Cox bundles offer a savings of between $5.89 and $20.94

or about five to 13 percent off stand-alone service prices.225 Comcast packages offered a savings

of $33 off stand-alone service prices, a reduction of 16 to 19 percent.226 Fairfax County found

that incumbent cable providers were responding to competition by offering lower-priced bundled
227 Id. at 10.

228 NTIA Broadband Report, at Table 7 (citing TIA Market Study).

229 Id. at Table 8.

230 Id. at 24 & Table 6.

231 Hazlett, Tr. at 174-76. After the passage of the 1996 Act, the FCC required telephone companies to

make the high-speed portions of their copper loops available on an unbundled wholesale basis at regulated prices to

independent third-party DSL providers. This regulation was referred to as a “line sharing” obligation. It allowed

third-party DSL providers to offer broadband service to customers without having to purchase the entire unbundled

loop and provide telephony service as well. However, the FCC did not require cable operators similarly to open

their facilities to third-party broadband providers, creating a regulatory asymmetry between the obligations of the

ILECs and cable companies, which were already competing on a facilities basis to offer broadband service. In

February 2003, the FCC adopted an order rescinding the broadband line-sharing obligations for ILECs. Report and

Order and Order on Remand and Further Notice of Proposed Rulemaking, In the Matter of Review of the Section 251

Unbundling Obligations of Incumbent Local Exchange Carriers, Implementation of the Local Competition

Provisions of the Telecommunications Act of 1996, Deployment of Wireline Services Offering Advanced

Telecommunications Capability, FCC CC Docket Nos. 01-338, 96-98, 98-147, 18 FCC Rcd 16,978, 17,132-36 (rel.

45

packages with more limited features, as well as promotional discounts to new subscribers, to

match the competitor’s bundled rate.227

2. Non-Price Effects of Competition

Extensive investment in facilities-based telecommunications networks has been one

aspect of the more competitive new environment. This investment has yielded positive benefits

for service quality and consumer choice. Telecommunications equipment spending has trended

upward, with total annual spending increasing from $15.2 billion in 2003 to $24.4 billion by

2007.228 Annual investment in equipment is projected to rise further to $28.9 billion by 2010. 

Similarly, spending on services to support broadband network infrastructure is projected to

increase from $15.2 billion to $23 billion between 2007 and 2010.229 Annual deployment of

fiber in the United States has grown sharply from a low of 4.8 million miles in 2003 to 13.1

million miles in 2007, and is projected to increase to 15.8 million miles by 2010.230

Competition has made this investment and the resulting non-price benefits not merely an

option but a matter of long-term survival. Indeed, some of the most substantial investments in

more advanced networks and entry into new lines of service have been made by the incumbent

telephone and cable companies because they faced competitive challenges as well as new

competitive opportunities.

At least one Symposium participant attributed the new facilities-based investments made

by telephone carriers partly to regulatory changes limiting these carriers’ obligations to share

their facilities with competitors. Economist Dr. Thomas Hazlett explained that these regulatory

changes provided a natural experiment demonstrating that regulation requiring the sharing of

facilities limits investment. According to Dr. Hazlett, revised FCC rules relieving ILECs of their

obligations to make unbundled facilities available to competitors for DSL “line sharing”

encouraged the ILECs to make network investments and compete more aggressively against the

cable companies.231 This, Dr. Hazlett stated, substantially narrowed the gap between the
Aug. 21, 2003), vacated and remanded in part, aff’d in part, United States Telecom Ass’n v. FCC, 359 F.3d 554

(D.C. Cir. 2004), cert. denied, 543 U.S. 925 (2004).

232 Thomas W. Hazlett, George Mason University School of Law, “Emerging U.S. Wireless Broadband

Markets,” 2007 DOJ Telecommunications Symposium, Nov. 29, 2007, at 4 (“Hazlett Presentation”) (graph shows

that the rate of additions of new DSL subscribers following the FCC’s high-speed line-sharing deregulation

increased, while the rate of additions of new cable modem subscribers remained the same).

233 Hazlett, Tr. at 174-176; Hazlett Presentation, at 4.

234 Hazlett Presentation, at 3 (graph shows number of residential subscribers to cable modem exceeded

subscribers to DSL from 1999 to 2002).

235 See NTIA Broadband Report, at 24 & Table 6 (showing that telephone companies have increased annual

fiber deployment from 2.4 to 9.7 million miles from 2003 to 2006, and the total is expected to increase to 12.9

million miles by 2010).

236 See Verizon Submission, at ii, 1. The $23 billion includes about $18 billion in net expenditures to

deploy the network, and $5 billion to connect individual subscribers, but does not include savings Verizon hopes to

achieve from avoiding future maintenance of its legacy copper telephone network between 2004 and 2010. Id. at 1

n.1.

237 NTIA Broadband Report, at 25, 34; AT&T Says Costs Rise for TV System’s Launch, WALL ST. J., May

8, 2007, at B4.

46

broadband shares of the cable and telephone companies, which had been at a two to one ratio

from 1999 through 2002. After the FCC rescinded the line-sharing requirement, cable modem

service continued to attract customers at about the same rate, but DSL began to add subscribers

at an increased rate.232 By the end of 2006, there were ten million more DSL households than

Dr. Hazlett believed would have existed had the line-sharing regulation remained in place.233 Dr.

Hazlett attributed the two to one advantage in U.S. broadband subscribership that the cable

companies enjoyed from 1999 to 2002 to the greater willingness of cable companies to invest

aggressively in their networks, which in turn was due to the difference in regulatory treatment.234

The largest ILECs have responded to facilities-based entry by cable operators into

telephony through substantial investments in fiber to provide video distribution services and

increase broadband speeds. This investment has been paralleled to a lesser extent by many

smaller ILECs.235 The largest single ILEC investment is the $23 billion Verizon is spending on

its new FiOS fiber-based network, which enables Verizon to provide multichannel video services

competitive with the cable incumbents and, as of November 2007, to provide broadband at

speeds of up to 20 Mbps in both directions (eventually as much as 100 Mbps downstream). 

These speeds are equal to or greater than what most cable modem service offers and far surpass

the telephone companies’ normal DSL speeds of 768 kbps over the copper wire network.236 The

next largest is AT&T’s plan to upgrade its landline network with 40,000 miles of FTTN, at a

cost ranging between $4.5 and $6.5 billion, to provide IPTV digital television services,

broadband Internet access (at speeds ranging from 1.5 to 6 Mbps downstream and 1 Mbps

upstream), and VoIP services under the “U-Verse” brand.237 Qwest, though it has not announced

video service deployments in its landline network comparable to Verizon or AT&T, has said that
238 NTIA Broadband Report, at 34.

239 Id. at 32-33 & Chart 10 (citing various sources including NCTA data).

240 Id. at 24 & Table 6.

241 Wilson, Tr. at 87.

242 Goodman, Tr. at 27-28; Goodman Presentation, at 2-4; BSPA Submission, at 9.

243 See New Wireless Venture Seen Drawing Scant Regulatory Scrutiny, COMM. DAILY, May 8, 2005, at 2-

5; Does the New Ultra-Mega Clearwire Have Enough Dough?, May 13, 2008, available at

http://www.dslreports.com/shownews /Does-the-New-Ultra-Mega-Clearwire-Have-Enough-Dough-94371.

47

Evidence presented suggested that

incumbent providers are reacting to new

entry by increasing the quality of their

offerings, providing consumers with

higher broadband speeds, more HD

channels, and other features.

the company plans to spend $300 million to deploy fiber upgrades to provide speeds of 20 Mbps

to 1.5 million more homes.238

Cable companies like Cox have also made very substantial new investments. The

increased use of VoIP rather than circuit-switched telephony has made entry much less

expensive for cable companies, leading most to enter telephone services within the past several

years. From 1996 through 2006, cable companies in the United States made more than $117

billion in capital expenditures to develop their broadband networks. During 2007 they were

expected to spend another $13.7 billion on infrastructure, up ten percent over 2006.239 Cable

companies’ new investment in fiber has been considerably less than the telephone companies in

recent years. Following a period of heavy activity from 2000 through 2002, fiber investment by

cable companies declined, but investment began to rise again after 2006. Cable operators are

expected to deploy almost 4.6 million miles of fiber between 2007 and 2010.240 Since the 1996

Act, Cox, one of the first cable companies to offer telephony, has spent about $16 billion on

private capital investments to build a state-of-the-art network.241

In addition to these major investments by telephone and cable incumbents, significant

investments have been made in telecommunications facilities by a number of smaller companies

seeking to serve residential customers. Facilities-based overbuilders like RCN and other

members of the BSPA in the aggregate have constructed more than 40,000 miles of networks,

passing 4.1 million homes, to provide multichannel video, voice telephone, and broadband

services.242

Several companies are making significant investments to provide new wireless

broadband services, including AT&T, Sprint Nextel, Clearwire, and DigitalBridge. The joint

venture between Sprint Nextel and Clearwire has raised $3.2 billion in capital and its executives

are predicting that it will need another $2 to 2.3 billion to complete the roll out of its network.243

This network will use WiMAX technology,

which according to Symposium speakers is

substantially less expensive than older

technology.

Several Symposium participants

discussed the non-price benefits from

competitive entry and new investment. For
244 Singer Supp. Submission, at 4.

245 Verizon Submission, at 9-10. Verizon observed that in northeast Indiana, Comcast doubled the speed of

its fastest cable modem service when Verizon rolled out FiOS there, while Cox and Adelphia increased modem

speeds in Northern Virginia when FiOS was deployed, and Time Warner and Cablevision increased speeds in the

New York area as well.

246 Raclin, Tr. at 51-52; see Raclin Presentation, at 9, and Charter Submission, at 11-12.

247 Singer Presentation, at 12-16.

248 NCTA Program Access Comments, at 5.

249 Verizon Submission, at 10.

250 Verizon Supp. Submission, at 7.

48

example, Dr. Singer predicted that incumbent cable operators are likely to react to telephone

company entry by increasing the quality of their offerings (such as by offering more HD and

VOD programming).244 Dr. Singer’s predictions are supported by observation of actual cable

company competitive responses. According to Verizon, several cable companies have improved

their cable modem service in response to FiOS in their territories, increasing modem service

speeds to as high as 10 to 30 Mbps. Cable operators also have made investments in new cable

modem technologies that could increase broadband speeds to as high as 150 Mbps.245 In addition

to rolling out its bundled service offering, Charter stated that it has responded to new entry by

improving customer service, increasing bandwidth speeds to try to “get up to the level of

bandwidth that FiOS offers,” adding more programming channels and services, and rolling out

enhanced products (such as HD).246 In addition, cable companies have made competitive

investment responses to video entry by AT&T, including offering more HD channels, more

VOD, more digital telephony features, and wireless telephony.247 According to the NCTA, “the

telephone companies have adopted strategies that focus on quantity and quality of programming,

rather than focusing solely on price.”248

Verizon continues to improve its service, claiming that by the end of 2008, the company

will offer 150 HD channels and more than 10,000 VOD titles in HD.249 Verizon also offers

different downstream Internet speeds in response to the offering of the local cable company. For

example, in Massapequa Park, New York, both Verizon and the incumbent cable operator offer

20 Mbps downstream speed. In contrast, in Bethesda, Maryland, Verizon offers 5 Mbps

downstream versus Comcast’s 6 Mbps.250
251 Hazlett, Tr. at 177; Kafka, Tr. at 196-97.

252 In June 2008, Verizon announced that it will acquire Alltel. Alltel Deal Strengthens Hand of Verizon

Wireless, WALL ST. J., June 6, 2008, at B9.

253 Another broadband service provider of this type mentioned by Dr. Hazlett was Frontline. Hazlett, Tr. at

180. Frontline filed an application to bid in the 700 MHz auction, but it has since ceased to operate. Frontline

Wireless News, Frontline Wireless statement, Jan. 12, 2008, and Frontline Wireless News, Frontline Confirms

Auction Participation, Dec. 3, 2007, available at http://www.frontlinewireless.com/news.php.

254 Hazlett, Tr. at 180-81.

255 See, e.g., Levin, Tr. at 303-12. Levin’s analysis is discussed in more detail infra.

256 Brown, Tr. at 287-89.

49

C. Challenges Faced by New Broadband Providers

Dr. Hazlett and Hank Kafka, of AT&T Inc., claimed that there was already substantial

competition for broadband services.251 Dr. Hazlett described as additional competitors several

categories of wireless data players. First, wireless voice carriers are upgrading their mobile

voice networks to provide broadband services. These include the national wireless carriers,

AT&T, Verizon, Sprint, and T-Mobile, as well as regional carriers such as Alltel,252 Leap, and

MetroPCS, who have not as yet been significant entrants into the data markets. Second,

companies have entered the provision of broadband service by purchasing access to spectrum

and networks from existing wireless carriers. These broadband service providers include

Research in Motion/Blackberry, OnStar, iPhone, Virgin Mobile, and Twitter. Third, there are

broadband service providers with their own networks, such as Clearwire and DigitalBridge.253

Additionally, on the margin, there are potential entrants such as SpectrumCo, a consortium of

cable operators that acquired spectrum in the Advanced Wireless Services (“AWS”) auction, and

applications providers such as Google, Microsoft, and Apple. Some of these applications

providers have contracted with existing wireless providers or have made efforts to organize

consortia in order to enter the wireless broadband market.254 Industry analyst Blair Levin, of

Stifel Nicolaus, disagreed with Dr. Hazlett, contending that broadband competition is limited at

present to wireline providers and that in most areas of the country there are only two providers –

incumbent cable companies providing cable modem services and incumbent telephone

companies offering DSL services or in some areas fiber-based networks.255

One speaker acknowledged that his company’s broadband services are aimed at specific

“niche” markets (meaning they appeal only to a select group of users limited by geography or

some other characteristic). WildBlue’s target market is primarily rural areas where consumers

are not served by either DSL or cable.256 Another speaker said that his company’s initial focus

was on smaller communities in underserved areas, or where broadband services are not offered. 

DigitalBridge is able to compete in smaller communities because WiMAX is highly capital

efficient: it costs only $40 to $60 to pass a household, compared to $800 to $1200 for DSL or
257 Wallace, Tr. at 228-29; Wallace Presentation, at 4.

258 Wallace, Tr. at 259.

259 Shen, Tr. at 202, 208, 211; Salemme, Tr. at 222-23; Herron, Tr. at 295, 299-300.

260 Salemme, Tr. at 260.

261 Shen, Tr. at 260.

262 Herron, Tr. at 321.

263 Shen, Tr. at 208 (“We think the WiMAX technology will achieve one-tenth of the current 3G cost, and

that will give us a lot of flexibility driving adoption by the mass consumer market.”). Salemme, of Clearwire,

similarly said that his company will be able to deliver a bit over wireless networks at one-tenth of the cost of

previous networks. Id. at 219. Articles published after the Clearwire joint venture was announced have reported

that some analysts doubt whether its WiMAX strategy will have competitive advantages over other mobile wireless

broadband technologies (such as long term evolution (“LTE”)). See Matt Hamblen, WiMAX vs. Long Term

Evolution: Let the Battle Begin, COMPUTER WORLD, May 14, 2008, available at http://www.computerworld.com/

action/article.do?command=viewArticleBasic&taxonomyName=voip&articleId=9085202&taxonomyId=81.

264 Shen, Tr. at 205-07; Sprint/Clearwire Transfer Application, Ex. 1, at 24-26.

50

Providers of wireless and BPL broadband

services are optimistic about their

prospects, believing they can compete

directly with existing landline providers.

cable companies.257 DigitalBridge believes that about half of its customers did not previously

subscribe to broadband services.258

On the other hand, Sprint Nextel,

Clearwire, and Current presented very

positive assessments of the likely impact of

their WiMAX and BPL broadband services,

claiming they would challenge the incumbent

cable and telephony providers.259 Clearwire

said a little more than 40 percent of its current customers switched from DSL or cable modem

services.260 Sprint Nextel at the time of the Symposium was not yet providing its WiMAX

broadband service, but opined that wireless broadband will follow a trend similar to wireless

voice. Initial purchasers will be new broadband subscribers, but eventually people will think of

it as a replacement for landline services.261 Current believes that 50 percent of its customers in

Cincinnati came from the telephone company or cable company.262

Sprint Nextel and Clearwire discussed the advantages resulting from their use of

WiMAX technology, including the ability to build their networks at a lower cost than existing

wireless technologies and make them affordable for residential consumers.263 They also said that

they intended to cut costs by convincing consumer electronic manufacturers to include WiMAX

chips in laptops, game systems, PDAs, and other portable devices. This would eliminate the

need to support a range of handsets.264

Sprint Nextel and Clearwire stated that their systems also would have other advantages,

including offering an “open” network allowing any device to be connected to, and any
265 Shen, Tr. at 207; Sprint/Clearwire Transfer Application, Ex. 1, at 24-27. Other providers have

announced plans to allow unaffiliated applications and devices to be used on their networks. See Press Release,

Verizon Wireless, Verizon Wireless To Introduce ‘Any Apps, Any Device’ Option For Customers In 2008,

November 27, 2007, available at http://news.vzw.com/news/2007/11/pr2007-11-27.html.

266 Shen, Tr. at 207.

267 Shen, Tr. at 235-36; Salemme, Tr. at 236-37.

268 Shen, Tr. at 208.

269 Id.

270 Id. at 209.

271 Salemme, Tr. at 239. The new Clearwire also has suggested that it will benefit from its willingness to

offer its services on a wholesale basis. Its cable company partners will offer new Clearwire services in combination

with their wireline video, voice, and broadband services. Sprint/Clearwire Transfer Application, Ex. 1, at 20, 37-38.

272 Grayer, Tr. at 282.

51

application to run on, the network.265 Openness invites a broader community to produce

innovative devices and applications, driving more traffic onto the network.266 In addition, the

companies said they planned to offer some content that is exclusive to their networks.267 Finally,

their intent was to make their services more affordable than existing wireless services. Although

the majority of Sprint Nextel’s existing wireless broadband customers are businesses,268 Sprint

Nextel believes that service pricing can be made more attractive to a broader range of customers

because of the lower cost of WiMAX.269 Sprint Nextel also planned to offer more flexible plans

(such as single day subscriptions) that would lower barriers for consumers with WiMAX

embedded in their laptops.270

Clearwire indicated that when it sets prices, the company compares its features to other

broadband options. It prices a little above DSL service because Clearwire’s portability offers

more value, but a little less than cable modem service which can provide higher speeds.271

Sprint Nextel and Clearwire also expressed the view that they would be able to challenge

existing providers by offering consumers the ability to take broadband services outside the home. 

Evan Grayer, of DirecTV Group, also acknowledged that this would be attractive to consumers. 

He said that although speeds available from mobile wireless broadband services were slower

than landline alternatives, customers would buy them anyway because they offer mobility and

the advantage of having a single provider.272

Although Municipal Wi-Fi networks were not specifically represented at the Symposium,

several speakers expressed the view that they would provide additional competition. Kafka, of

AT&T, stated that Municipal Wi-Fi networks are fully capable of providing broadband services

as a technical matter. In Kafka’s opinion, technical and business challenges for Municipal Wi-Fi
273 Kafka, Tr. at 190-91.

274 Ian Urbina, Hopes for Wireless Cities Fade as Internet Providers Pull Out, N.Y. TIMES, Mar. 22, 2008,

available at http://www.nytimes.com/2008/03/22/us/22wireless.html?_r=1&pagewanted.

275 Levin, Tr. at 303. This pessimism does not extend to the niche broadband services, such as WildBlue’s

satellite service, which are important in terms of universal service and digital divide issues. Id.

276 Id. at 304.

277 Id. at 304-05.

278 Id. at 305.

279 Id. at 305-06.

280 Id. at 306-07.

52

Doubts were expressed about the potential

impact wireless broadband providers and

BPL will have on broadband competition

because existing providers have firstmover, scale, and scope advantages.

are surmountable.273 However, some reports indicate that Municipal Wi-Fi systems have been

losing momentum, with some providers abandoning their networks or refusing to expand.274

Industry analyst Levin provided a

Wall Street perspective on the likely impact

of alternative broadband technologies (such

as WiMAX, BPL, and satellite). Levin was

pessimistic about their ability to move

beyond niche markets to more broadly

challenge the cable companies and telephone

companies.275 Levin cited a few of the reasons for his pessimism. First, he focused on the

failures of other technologies (such as LMDS, Municipal Wi-Fi, and Vonage’s nomadic VoIP),

observing that promising technologies do not always succeed as business concepts. Vonage was

the subject of a high technology Initial Public Offering selling for $17, but as of November 2007

was selling for only about $2. None of those technologies, Levin stated, is going to have a

significant competitive impact.276

Second, new technologies will be entering a maturing broadband product market, where

most potential customers have already signed up with one of the incumbents.277 Levin observed

that it is well understood in marketing that it is difficult to take away a customer who is already

subscribing to someone else’s service.278 Though Clearwire reported that it obtains a little more

than 40 percent of its customers from cable and DSL, Levin noted that the combined share of

cable company and telephone company broadband has remained very consistent over the last

five years. He believes that it is going to get more difficult to take their customers away,

because new technologies are competing against competitors with significant advantages in

terms of brands, bundles, and economies of scale.279

Levin noted that incumbents also have other advantages. For example, many of them

require term commitments.280 That means there is only a small window when a customer is able

to move. The incumbent knows when that window is, but the new entrant does not. The new

entrant must spend resources marketing to customers during periods when they cannot switch or
281 Id. at 307.

282 Id.

283 Id. at 307-08.

284 Id. at 308.

285 Id. at 311.

286 Id. at 309.

287 Id. at 310.

288 Id.

289 Id. at 311.

290 Levin, Tr. at 311. This concern about the failure of spectrum auctions to result in much entry was

shared by Dr. Wilkie. In the FCC’s AWS spectrum auction, the last major one before the FCC’s 700 MHz auction

pending at the time of the Symposium, Dr. Wilkie observed that no significant new entrant was able to get into the

market. Wilkie, Tr. at 143. He characterized the 700 MHz auction as the “last best opportunity” to get a new

broadband entrant. Id. The results of the 700 MHz auction were announced in March 2008. AT&T and Verizon

won an estimated 80 percent of the spectrum sold. Verizon, AT&T Account for Most 700 MHz Bids, COMM. DAILY,

Mar. 21, 2008, at 1; FCC Names Winners of Wireless Auction, WASH. POST, Mar. 21, 2008, at D1.

53

will have disincentives to doing so.281 In contrast, an incumbent can target discounts and other

incentives to subscribers immediately prior to the expiration of their contracts.282

Third, Levin cited the inability of the new entrants to offer any functional advantage over

the incumbents, apart from the one obvious advantage of wireless – mobility.283 Levin

questioned the ability of a new entrant to offer a significant price advantage, particularly when

selling against a bundle.284

Levin predicted that mobile and wireline broadband would probably be complementary,

rather than directly competing services.285 In the past, mobile voice has not been a competitor to

landline voice service; Levin also disagreed with AT&T’s view that wireless mobile broadband is

competitive with wireline.286 He opined that Verizon is building FiOS, and cable is increasing

speeds, to drive higher demand for newer applications, particularly high-definition video, for

which mobile delivery will never be competitive.287 However, if those applications do not

emerge, then mobile will be competitive and will have significant advantages based on its

mobility.288

Finally, Levin stated that entrants may have difficulty obtaining a number of key inputs

that they will need to succeed (such as sufficient spectrum).289 The 700 MHz auction provided

the best opportunity for a new entrant, in Levin’s view. But he did not think that a new

competitor was going to emerge because the incumbents have an incentive to block entry of

others.290 Another key input is intellectual property. Because of the recent lawsuits over
291 Levin, Tr. at 312.

292 Id. at 312-13.

293 Id. at 313.

294 Id. at 313-14.

295 Verizon Supp. Submission, at 11 (citing Frost & Sullivan, Move Toward Full Convergence -

Communication Services for U.S. Residential Markets, No. 20-62 (2007)).

296 Verizon Supp. Submission, at 11 (citing TNS Telecoms, 2Q07 National Market Tracking Report, at 9

(Sept. 2007)).

54

A growing number of consumers are

choosing to purchase bundled plans, and

some providers report that more than 30

percent of their subscribers purchase a

triple-play bundle.

intellectual property, Levin said that capital markets now have to consider whether there is a

potential lawsuit waiting to happen before making any big investment in this space.291

Generally, Levin was skeptical that there is going to be extensive broadband competition

from new entrants other than in discrete geographic markets. He noted the impact this lack of

competition will have on innovation.292 Levin said that 87.5 percent of Gross National Product

growth in the United States was due to technology changes that create new efficiency by

developing new ways of doing business.293 But he observed that the last 25 years have taught

that this kind of innovation does not start with incumbents. None of the most significant

innovations – e-mail, VoIP, instant messaging, search, video on the net, social networking, and

others – were invented or brought to the market by the incumbent providers.294

D. The Competitive Importance of Service Bundles

The Symposium discussions and

submissions highlighted the growing

importance of bundling telephony, broadband

Internet access, and video programming

services. Many providers, including

telephone companies, cable companies, and

CLECs, made clear the significant role that

bundles play in their competitive strategies, both in attracting customers and reducing churn, as

well as taking advantage of network economies. In addition, evidence presented showed that a

growing number of consumers are choosing bundled plans. It was less clear, however, whether

consumers purchase bundles solely to take advantage of the discounted prices or also view these

offerings as providing additional benefits (such as having a single bill or provider).

As of 2006, one study found that 46 percent of U.S. households subscribed to bundles of

two or more services and 11 percent to three or more.295 A 2007 study found that 64 percent of

U.S. households receive two or more services (excluding long distance, which is already widely

bundled with local telephone service) from the same provider.296 Another study found that 54

percent of consumers were already purchasing multiple services from a single provider in 2006

and forecast 76 percent would purchase multiple services from the same provider by the end of
297 Verizon Supp. Submission, at 11 (citing Patrick Monaghan, Yankee Group, Driving Value in the Quad

Play and the Future of the Communications Bundle, at 3 (Oct. 2007)).

298 Verizon Supp. Submission, at 9-11 (as of 3rd quarter 2007 unless otherwise stated); Verizon Submission,

at 1 n.2 (for FiOS Internet percentage as of 3rd quarter 2007).

299 Charter Submission, at 3.

300 Press Release, Cox Communications, Greater than 62% of Cox Customers Now Bundling Services, Feb.

13, 2008, available at http://phx.corporate-ir.net/phoenix.zhtml?c=76341&p=irol-newsArticle&t=Regular&id=

1107954& (“Cox Press Release”).

301 Goodman Presentation, at 4.

55

2007.297 These bundles typically consisted of broadband Internet service, in which the cable and

telephone incumbents have already been competing for several years, paired with either the cable

incumbent’s video service or the telephone incumbent’s voice service. Now that cable

companies have widely entered telephone service markets with VoIP and telephone incumbents

are beginning to enter video on a wireline basis, triple-play bundles are on the rise. Although

only a minority of customers is taking the triple-play bundle from a single provider today, that

share is rapidly growing, with some companies now reporting 30 percent or more of their

customers taking all three services, as discussed below.

The following table provides information reported by various providers on the

willingness of consumers to purchase bundled services, expressed as a percentage of overall

subscribers.

Table 5: Use of Bundled Services by Consumers Where Available

Provider Consumers buying Triple-Play

Consumers Using

only a Stand-Alone

Service

Consumers

Using Two or

More Bundled 

Services

Penetration of

Newer Services in

Homes Passed

Verizon

(FiOS only)298

N/A 11% 88%,

including 38%

voice and data

and 50%

video plus at

least one other

service

17% (Jan. 2008)

(FiOS TV);

20% (FiOS

Internet)

Charter299 N/A 57%

(video)

43% Under 10%

(voice)

Cox300 More than 30% 38%

(video)

62% Nearly 40%

(voice)

BSPA

Members301

32% 31%, including

22% video and

9% voice or data

70%,

including 38%

taking two

services only

N/A
302 Verizon Submission, at 11; see also Verizon Supp. Submission, at 10-11.

303 Verizon Submission, at 11.

304 Verizon Supp. Submission, at 11.

305 See Wilson, Tr. at 90 (referring to 100 million homes where cable telephony is available).

306 Cox Press Release.

307 Charter Submission, at 2-3.

308 Goodman, Tr. at 29-30; Goodman Presentation, at 2; BSPA Submission, at 3.

309 Goodman, Tr. at 29-30; Goodman Presentation, at 4.

310 Goodman, Tr. at 29-31; Goodman Presentation, at 8; BSPA Submission, at 10.

311 Goodman, Tr. at 30-31.

56

According to Verizon, “a large and increasing number of consumers” prefer to purchase

voice, video, and broadband Internet services on a bundled basis from a single provider for the

convenience of a single bill and one-stop shopping, and for the discounts.302 Verizon views

bundles as a form of quantity discount that increases sales revenue earned from a customer and

enables a firm to reduce its costs in various ways, including scale, scope and marketing

economies, while reducing transaction costs for consumers.303 Verizon has also found that 56

percent of the customers who switched to it from another provider did so to get a bundle of three

services; 82 percent of those customers received a discount on the bundled service.304

The cable companies offered similar perspectives on the importance of bundling. 

Nationwide, they are better positioned to offer a wireline triple-play bundle than are the

incumbent telephone carriers, because cable telephony is available to more homes than are

Verizon’s or AT&T’s video services.305 Cox has made telephone and broadband available to

nearly 100 percent of its customer base. At the end of 2007, 62 percent of its customers, a total

of 3.7 million, were purchasing bundled services.306 As of November 2007, Charter had 2.5

million customers (out of its 5.7 million video customers) purchasing bundles of two or more

services.307

BSPA members offer their own facilities-based digital video, broadband Internet, and

voice telephony services on a “bundled triple-play” basis as a central part of their business

model.308 BSPA members have the highest take rate of triple-play bundles among providers who

supplied data for the Symposium – on average 32 percent, with some members selling more than

50 percent of their customers triple-plays.309 According to Goodman, of the BSPA, members of

his organization have found the bundle to be “essential” to wireline competition. They have also

found that sales are driven by video, which has the highest penetration and best economics,

although broadband and VoIP telephone services are growing in penetration. A video-only

strategy, as early overbuilders found, fails without the added revenues of voice and data.310 The

advantage of the triple-play model is that it has not been necessary to get a dominant share in any

of the three services to survive.311
312 Perkins, Tr. at 97-99; see Perkins Presentation, at 3. “Ethernet” refers to a local area network standard,

known officially as IEEE 802.3, which operates over wire and over coaxial cable.

313 Perkins, Tr. at 99; see Perkins Presentation, at 3.

314 Canfield, Tr. at 116-17; NTCA Broadband Survey, at 16. Sixty-three percent of NTCA members are

offering or planning to offer video services. Canfield, Tr. at 117-18.

315 See Wilkie, Tr. at 135-36 (discussing effect of bundles on reducing churn).

316 Verizon said consumers liked receiving a single bill and one stop shopping. Verizon Submission, at 11. 

Grayer of DirecTV said the main advantage of bundling was the convenience of ordering service from a single

company, but he did not think that a single bill was particularly important to customers. Grayer, Tr. at 319-20. 

Industry analyst Levin said that the work has not been done to determine the impact of bundling and that bundling

will become more significant to consumers when firms are able to integrate the functions of the various services. 

Levin, Tr. at 323-24.

57

Bundling is not limited to CLECs with their own end-to-end facilities. Perkins, of

Cavalier, described the triple-play product that his company offers to residential customers using

unbundled loops, combining IPTV service, a 15 Mbps Ethernet broadband service, and voice

telephony.312 Perkins explained, “We are in triple-play because we have to be. That is where the

competitors are going, the big competitors in the marketplace.”313

Even the smaller rural telephone incumbents have begun to bundle their services. 

According to membership surveys, 59 percent of NTCA carriers are now offering bundled

services; that number is expected to increase as more cable companies enter the voice telephone

market. Though it is not seen as a large source of revenue, video is one of the key drivers for

broadband deployment in rural areas, as carriers need it to retain their customers by offering

them the triple play.314

The available evidence from the Symposium and other public sources indicates that

bundled offerings are now widely available. Some providers can offer these services over their

own networks. Others, including the telephone companies in many areas and satellite providers,

rely on partnerships with other service providers to offer a full bundle of services. At present,

there are only a small number of areas where two or more providers offer triple-play bundles

with all three services carried over their own networks. This is because the incumbent telephone

companies are in the process of rolling out their video-capable fiber networks and BSPs are

available in limited geographic areas.

As noted above, providers benefit from bundles by gaining the ability to use an existing

connection to earn more revenue from a customer. In addition, customers who purchase bundles

tend to churn less frequently, reducing providers’ marketing costs as they spend less to recruit

and retain customers.315

Although bundled service customers gain the benefits of dealing with a single provider

and obtaining a single bill, Symposium participants debated whether this was a major factor

motivating customers’ decisions.316 A more substantial reason why customers buy bundles may

be that bundles are sold at lower prices compared to purchasing the services separately from the

same provider. The information provided in the Symposium indicates that triple-play bundles
317 See generally Chapter II.B supra.

318 See Wilkie, Tr. at 135.

319 See id. at 137.

320 See id. at 135-36.

321 Salemme, Tr. at 252-53 (stating that Clearwire sells facilities-based VoIP in all of the markets it serves,

but this is only marketed to broadband customers); Wallace, Tr. at 253 (observing that DigitalBridge has approach

similar to Clearwire).

322 Wallace, Tr. at 253 (stating that hosted VoIP providers can provide a turnkey solution so that the

broadband provider does not need to become a voice provider but can resell this service).

323 See Raclin, Tr. at 47 (discussing mobile video).

324 Salemme Presentation, at 5.

325 Verizon Submission, at 3 n.12.

58

can be discounted by as much as one third over stand-alone service offered by the same provider,

particularly if the customer is willing to commit to a contract with a term of a year or more.317

Providers may be offering these discounts because bundling leads to efficiencies in the use of

their networks and/or because it will reduce churn.

Dr. Wilkie noted that, although customers can save money from bundles compared with

the cost of buying the three services individually from the same provider, they may be able to

obtain lower-priced and more appealing services by purchasing from three separate providers.318

He suggested that bundling may reduce churn because customers now have to switch two or

more services and find a provider that meets all of their requirements.319 It is therefore difficult

to predict the impact of bundling on customers.320 If customers stay with providers because they

are happy with their services, the net benefit will be positive. However, if they stay with their

existing provider because it is time consuming and difficult to change, it is less clear whether

there will be a net benefit to consumers.

Some broadband providers are not able to offer triple-play bundles over their own

facilities. For example, Clearwire and DigitalBridge offer VoIP telephony along with their

wireless broadband data services,321 the telephony service being provided by a third-party

provider and resold by Clearwire and DigitalBridge.322 Clearwire and DigitalBridge also do not

offer their own multichannel video programming delivery services now, although Clearwire

expects to offer some video programming in the future.323 R. Gerard Salemme, of Clearwire,

stated that his company’s plan is to expand from home data services in 2007 to offer a mobile

triple-play, with mobile data in 2008, mobile voice in 2009, and mobile video (such as in

automobiles) in 2010.324

Satellite television cannot be easily offered as a bundle with broadband and voice

services over the same satellite system.325 Grayer, of DirecTV, maintained that his company is

doing well due to a superior video product despite the lack of a complete bundle of services
326 Grayer, Tr. at 273-74. As of the first quarter of 2008, DIRECTV had added another 964,000

gross/275,000 net subscribers in the U.S. See DIRECTV 1st Q Press Release.

327 Grayer, Tr. at 274-75.

328 Levin, Tr. at 322. Independent consumer analysis similarly supports the advantage that DBS currently

has over cable in HD offerings. High-def TV service, CONSUMER REP., Mar. 2008, at 28. This article reports that

consumer were generally more satisfied with the HD offerings of satellite than cable, though satellite offered more

limited VOD offerings.

329 Goodman, Tr. at 32-33; Goodman Presentation, at 7.

330 GAO 2005 Study, at 11.

331 Grayer, Tr. at 274.

332 Id. at 275-76.

333 Id.

59

offered over its own facilities, with one million subscribers added in the third quarter of 2007.326

Grayer contended that consumers benefit more by purchasing video from DirecTV rather than by

purchasing a triple-play bundle from a cable provider that has fewer HD channels.327 Industry

analyst Levin agreed that DirecTV’s success even without a bundle was attributable to a superior

video product as the result of the decision to invest in HD.328 However, Goodman, of the BSPA,

discussed a 2005 GAO study indicating that DBS penetration is much lower where cable

competitors offer the triple-play bundle.329 In this study, DBS penetration rates were found to be

highest, at 36 percent, where DBS competed against only a traditional cable system offering no

advanced services (such as digital cable, cable modem, and telephone services). But where a

cable provider offers one or more, but not all, advanced services (for example, digital video plus

broadband, but not telephony), DBS penetration fell to 16 percent. When competing against a

cable provider offering all three advanced services, DBS penetration dropped most dramatically,

to 14 percent.330

To the extent bundling is preferred by consumers, providers that cannot offer a full

bundle over their own facilities may be able to mitigate the impact through service partnerships. 

DirecTV offers broadband and voice packages that it provides through arrangements with other

carriers, primarily telephone companies. The telephone companies gain the ability to sell video

bundled with their DSL and voice services where they cannot provide video over their own

networks.331 However, DirecTV is aware that these types of arrangements have limits going

forward. DSL services are not available everywhere, the telephone companies are increasingly

becoming video competitors of DirecTV in major markets, and wholesale arrangements

generally can be difficult to implement for business and technical reasons.332 Therefore,

DirecTV is cultivating multiple types of wholesale arrangements with different providers,

including relationships with WildBlue and Current for broadband services.333

Broadband over power line providers also have limited ability to respond to bundling. 

Current offers only broadband Internet access, along with the potential for customers to use

VoIP telephone services over broadband, but it does not provide a full multichannel video
334 Herron Presentation, at 4 (listing services as broadband data with a 10+ Mbps rate, VoIP voice services,

but only video on demand or video instant messaging).

335 Herron, Tr. at 321.

336 Id.

337 See Levin, Tr. at 323-24 (explaining that the bundle becomes a much more powerful product when it

provides integrated services rather than just discounts – for example, allowing users who are watching video

programming to have information on incoming telephone calls appear on their TV screens).

338 Horizontal Merger Guidelines §1.11.

339 Dr. Wilkie noted that bundling can affect market definition, making it more difficult to apply the

antitrust “SSNIP” test when competitors sell bundles with different elements in them. Wilkie, Tr. at 126-27.

60

service comparable to the cable or telephone companies.334 Therefore, Brandon Herron, of

Current Group LLC, said that his company was also partnering with DirecTV on the video side

to provide a triple-play bundle.335 Herron contended that Current’s inability to offer a triple play

was not a detriment as some customers rely solely on wireless phones and watch video off the

Internet and, therefore, are not interested in purchasing a bundle.336

The experiences of the satellite and BPL providers demonstrate that companies unable to

offer a full bundle on their own either: (1) price below competitors so as to offer consumers the

opportunity to assemble their own service bundles; or (2) differentiate their products based on

quality, offering features attractive to particular customers or a wider range of offerings to make

their services attractive on a stand-alone basis. In addition, these providers will partner with

other companies to enable them to offer a bundle. These partnerships will become increasingly

less attractive, however, if the providers offering a triple play over their own networks succeed

in integrating their services in ways that non-integrated providers cannot. Bundling has the

potential to become an even more significant competitive strategy to the extent firms can

integrate services337 and thereby further differentiate themselves from rivals.

There was no consensus whether bundled products constitute a separate product market

from stand-alone services or will do so in the future. Markets are defined in the Horizontal

Merger Guidelines based on the “SSNIP” test: absent price discrimination, a product or group of

products can be defined as a market if “a hypothetical profit-maximizing firm that was the only

present and future seller of those products (‘monopolist’) likely would impose at least a ‘small

but significant and nontransitory’ increase in price.”338 Applied in this context, if a small but

significant nontransitory price increase applied to bundled offerings by all of the firms capable of

offering a bundle would not be constrained by substitution to alternative stand-alone services,

the bundled product would be considered to be in a distinct product market from the stand-alone

products.339

Although no Symposium participant offered the results of such a complete market

analysis, participants reached varying conclusions about the appropriate markets based on the

limited data available. Raclin, of Charter, argued for a broad market definition of “integrated

communications services” including voice, broadband or high-speed data, and video sold to
340 Charter Submission, at 28-29.

341 Lindsay, Tr. at 77-79.

342 Singer Supp. Submission, at 5-6.

343 For example, in the Six MSA Order, Verizon’s request for forbearance from various federal regulatory

requirements in six major metropolitan areas was based in part on claims of substantial wireless competition for

residential and small business customers. However, the FCC found that “[w]ith respect to retail competition for

mass market customers, Verizon’s MSA-wide mass market market shares, even including wireless ‘cut the cord’

competition . . . are not sufficient to warrant forbearance from dominant carrier regulation.” Six MSA Order, at

21,313-14.

344 “Access” as used here refers to the monthly fixed rates consumers pay to have a telephone line, rather

than any usage-sensitive per-minute charges they may incur for calls.

345 FCC Local Telephone Competition Report, at Table 14.

61

residential customers, taking into account the increasing sale of these products in a bundle.340

Lindsay, of Qwest, contended that competition should be evaluated in terms of competing

broadband access suppliers, rather than individual services offered over the networks.341 In

contrast, Dr. Singer suggested that the triple-play bundle might be too broad a product market, as

an antitrust product market represents the smallest set of services for which a hypothetical

monopoly provider could profitably impose a SSNIP. If the provider of any component of the

triple-play bundle could profitably impose a SSNIP, then the bundle would not be in the market. 

He also noted that some providers, like DBS firms, can still profitably offer a component of the

bundle on a stand-alone basis.342

E. Wireless Substitution for Wireline Telecommunications Services

The issue of substitution of wireless mobile telephone services for landline telephony has

attracted considerable attention in recent years, and was a significant topic of discussion at the

Symposium. The ILECs have frequently expressed concern about wireless substitution eroding

their subscriber bases and revenues, and have also relied on the existence of wireless competition

to support their requests for deregulation and forbearance at the federal and state levels.343

Substantial information was presented at the Symposium, and is available from public sources, to

demonstrate that substitution from landline to mobile telecommunications services is having a

noticeable effect on the number and usage of residential lines served by incumbent landline

carriers. However, no evidence was presented at the Symposium that this substitution to date

has effectively constrained the prices consumers pay for access to landline telephone service.344

In addition, although the number is growing, publicly available sources report that less than 20

percent of consumers have “cut the cord.”

The increased popularity of mobile phones has affected telephone usage patterns. First,

there has been a marked increase in wireless subscribers and usage, so much so that the number

of wireless subscribers is greater than the number of landlines. FCC data indicate that, as of

December 2007, there were 249.2 million mobile phone subscribers in the United States, an

increase of 19.6 million (or more than eight percent) over the previous year.345 The number of
346 Id. at Table 1.

347 As of December 2007, there were 93.9 million residential switched access lines in service, including

81.8 million ILEC lines. FCC Local Telephone Competition Report, at Table 2. This total was down more than 33

million from the peak of 127.3 million residential wireline loops in 2001. Telephone Trends, at Table 7.4.

348 Lindsay Presentation, at 6.

349 Total CLEC residential landlines in use as of December 2007 were 12.1 million. FCC Local Telephone

Competition Report, at Table 2.

350 As of 2006, non-primary residential lines in use were 10.5 million, down from a peak of 26.3 million in

2001, a loss of 15.8 million. Telephone Trends, at Table 7.4. This decline has likely continued with the expanded

use of broadband lines since 2006.

351 Lindsay Presentation, at 8; Lindsay, Tr. at 79-82.

352 Between 2000 and 2007, the mix of residential traffic carried by the wireless mobile carriers shifted

more toward long distance from local calls. In 2000, 87 percent of residential wireless calls and 82 percent of

residential wireless minutes were intrastate (including local and intrastate toll, which are both charged for by mobile

carriers though local calls are generally not billed to residential customers on a usage basis by landline carriers),

compared with only nine percent interstate calls and 16 percent interstate minutes. By 2005, the share of residential

wireless calls that were interstate had increased to 15 percent, and 28 percent of residential wireless minutes were

62

mobile subscribers considerably exceeded the 158 million total residential and business landlines

in use.346

Second, the number of residential landlines in service has decreased substantially. FCC

data demonstrate the decline in absolute numbers of residential landlines.347 See Graph 2. All of

the major ILECs appear to have experienced similar residential line loss patterns. According to

Qwest, the company lost 3.7 million residential access lines between 2000 and 2006, or 32

percent of its lines. Other major ILECs suffered losses nearly as large in percentage terms, with

Verizon losing 10.8 million residential lines (or 28 percent), and AT&T losing 16.2 million

residential lines (or 30 percent) over the same period.348 Some of the ILEC losses are

attributable to competition from cable companies or other landline CLECs.349 Even more of the

losses are probably due to consumers discontinuing second telephone lines as they move from

narrowband Internet service to broadband service requiring only a single telephone line.350

Lindsay, of Qwest, concluded that, because the overall number of voice connections in use is not

decreasing, the incumbents’ losses are attributable to users switching from the incumbents’

landline technology to wireless carriers as well as VoIP services.351

Third, consumers are shifting some usage from landline telephones to their wireless

phones when they own both. This shift is quite extensive in the case of landline long-distance

services traditionally paid for on a per-minute basis. The effective cost to the consumer of longdistance minutes on a mobile telephone has fallen, through the introduction of large “buckets” of

mobile minutes at a low average cost per minute, as well as through nationwide long distance

mobile services offered without the roaming charges that had earlier been a large part of the cost

of many wireless long distance calls. This has made it more attractive for many consumers to

make a larger share of their long distance calls on their mobile phones. The proportion of

wireless mobile traffic that is interstate has been steadily growing.352 The average wireless price
interstate, compared with 81 percent intrastate calls and 71 percent intrastate minutes. Telephone Trends, at Table

11.4.

353 Compare Telephone Trends, at Table 11.3 (average monthly wireless bill rose from $45.27 to $50.56

between December 2000 and December 2006, but average number of minutes used per month increased during the

same time from 255 to 714, bringing the average monthly rate per minute used down from 17.7 to 7.0 cents per

minute) with id., at Table 13.4 (average revenue per minute for interstate calls between 2000 and 2006 fell from nine

cents per minute to six cents per minute). In 2006, the sharp declines in mobile telephone service prices appeared to

have leveled off and prices became relatively stable. By some measures prices increased though other measures

continued to show declines. Though the average monthly wireless bill was $50.56, up slightly from 2005, average

revenue per minute was unchanged from 2005, at seven cents for all minutes or six cents for voice minutes. Twelfth

Report, In the Matter of Implementation of Section 6002(b) of the Omnibus Budget Reconciliation Act of 1993

Annual Report and Analysis of Competitive Market Conditions With Respect to Commercial Mobile Services, FCC

WT Docket No. 07-71, 23 FCC Rcd 2241, 2321-24 & Table 14 (rel. Feb. 4, 2008) (“FCC Twelfth CMRS Report”).

354 Eleventh Report, In the Matter of Implementation of Section 6002(b) of the Omnibus Budget

Reconciliation Act of 1993 Annual Report and Analysis of Competitive Market Conditions With Respect to

Commercial Mobile Services, FCC WT Docket No. 06-17, 21 FCC Rcd 10,947, 11,027 (rel. Sept. 29, 2006), (“FCC

Eleventh CMRS Report”).

63

per minute, which as of 2000 was still well in excess of average landline interstate per-minute

rates, fell by 2005 to a nearly comparable level.353 The FCC reported that customers in nearly

one-third of U.S. households make at least half of their long-distance calls at home from their

cell phones rather than their landlines. Forty-two percent of cell phone users that also have

landline telephones reported using their cell phones more often.354 Per-minute substitution has

been less relevant to local telephone service for residential customers, because most residential

customers still obtain local telephone service from their landline provider on a flat-fee basis

without per-minute usage charges.

To date, only a small percentage of customers forgo landlines entirely and rely solely on

a mobile wireless device, although data compiled by the FCC suggest that the percentage is

growing. See Graph 6 – Percent of U.S. Wireless-Only Telephone Households. A large majority

of residential consumers still choose to keep both a landline and a mobile telephone. This may

be due to the greater security afforded by redundancy on alternative networks, superior landline

voice quality, lower reliability, and coverage of the mobile networks in various geographic areas,

the ability to use the independently-powered landline telephone in an emergency or when mobile

networks lose power, or other factors. Moreover, for the growing number of consumers who

want a DSL broadband landline connection for Internet access, the additional cost of adding

landline network access for voice telephone service may be seen as relatively small, or even

unavoidable if “naked DSL” (DSL provided separately without the requirement to also buy voice

telephone service) is not offered by the landline telephone provider.
Graph 6

Percent of U.S. Wireless-Only Telephone Households

(As Reported by FCC Sources)

(December 2001 - December 2007)

3.2%

4.2%

5.0%

6.1%

7.3%

8.4%

10.5%

12.

1.2% 1.7%

4.7%

5.9%

10.6%

17.

0%5%

10%15%20%25%30%35%40%

Dec 2001 Dec 2002 Jun 2003 Dec 2003 Jun 2004 Dec 2004 Jun 2005 Dec 2005 Jun 2006 Dec 

Wireless-Only Subscribers as Percent of All Households (from NHIS Data)Wireless-Only Subscribers as Percent of All Telephone Households (from FCC Data)

* All Households data is taken from Twelfth Report, In the Matter of Implementation of Section 6002(b) of the Omnibus Budget Reconciliation Act of 1993 Annual RepMarket Conditions With Respect to Commercial Mobile Services, at ¶ 248, FCC WT Docket No. 07-71, 23 FCC Rcd 2241 (released Feb. 4, 2008), and Stephen J. Blum

Wireless Substitution: Early Release of Estimates Based on Data from the National Health Interview Survey, July - December 2007, National Center for Health Statistics

Table 1 (released May 13, 2008), available at http://www.cdc.gov/nchs/data/nhis/earlyrelease/wireless200805.pdf. Data source of report is National Health Interview Su

* Telephone Households data is taken from Industry Analysis and Technology Division, Wireline Competition Bureau, Federal Communications Commission, Trends in 

(August 2008).
355 Lindsay Presentation, at 8. The FCC Twelfth CMRS Report issued in 2008 included data from a

National Health Interview Survey showing that 11.8 percent of adults lived in households having only wireless

phones in 2006, up from 7.8 percent in 2005 and 3.5 percent in 2003, as well as data showing that 12.8 percent of

households had given up wireline telephones by 2006, up from 8.4 percent in 2005 and 4.2 percent in 2003. Twelfth

CMRS Report, at 2340-41. Other FCC data indicated that the total of wireless-only households was already 19.3

million in 2006, out of the total of 108.8 million U.S. households with telephone service at that time. Telephone

Trends, at Table 7.4.

356 Lindsay, Tr. at 157.

357 Stephen J. Blumberg & Julian V. Luke, Wireless Substitution: Early Release of Estimates Based on

Data from the National Health Interview Survey, July - December 2007, National Center for Health Statistics,

Centers for Disease Control, at Table 1 (released May 13, 2008), available at http://www.cdc.gov/nchs/data/nhis/

earlyrelease/wireless200805.pdf.

358 Id. at 80-81.

359 See Horizontal Merger Guidelines, § 1.1.

360 For some ILECs, the loss of landline subscribers to mobile wireless services does not mean that they

will lose all of the associated revenues. Some significant share of consumers who “cut the cord” entirely in the

regions served by AT&T and Verizon likely will remain with those companies’ wireless networks, given that AT&T

and Verizon have the nation’s two largest wireless businesses in terms of subscribers. Although wireless revenues

would not replace lost landline access revenues, assuming the customer was already a mobile service user, there

would be a revenue offset to the extent substitution to mobile leads to increased demand for mobile minutes paid on

a usage-sensitive basis, or the customer adds a new mobile telephone to substitute for the landline telephone.

65

Although wireless substitution has

decreased the number and usage of ILEC

residential lines, it is not clear whether

wireless substitution constrains the prices

consumers pay for access to landline

phone service.

Qwest submitted data illustrating that the percentage of U.S. households with only

wireless telephone service increased between January 2003 and December 2006 from 2.9 percent

to 11.8 percent, with significantly higher substitution in certain population segments, including

younger and poorer households.355 Lindsay, of Qwest, thought that by the end of 2007, 16 to 17

percent of U.S. homes probably no longer had wireline access.356 His estimates are close to

survey data indicating that 15.8 percent of all households had only wireless telephone service as

of December 2007.357 Lindsay also observed that the rate of this substitution has been

increasing, from 1.5 percent from June 2003 to June 2004, to 2 percent the next year, and to

about 3 percent from June 2005 to June 2006.358

The existence of some consumers who

choose to substitute wireless service for

access to the landline network does not

demonstrate that wireless service is an

effective constraint on prices for access to

landline services. That determination turns in

part on the number of customers who would

choose to substitute to wireless services

entirely in response to a specified price increase for landline telephone service, compared with

the number of customers who would choose to stay with landline and pay the additional price.359

The size of that wireless substitution effect is not known. However, there are reasons (discussed

below) to think that wireless is not by itself an effective competitive constraint today.360
361 Although these customers may substitute some usage from their landline to their cell phone, they

continue to pay the monthly nonusage-sensitive access fee to keep a landline telephone.

362 This assumes that the telephone company cannot identify which customers are likely to switch from

landline to wireless and only decrease access prices as to those users.

363 See Telephone Trends, at Tables 13.1 & 13.3 (showing a decrease in monthly prices for residential

access lines from 2000 to 2007 from $25.02 to $24.80 measured in 2006 dollars, as well as in total urban residential

rates including connection and other charges, from $44.10 to $40.67). It does not appear from available evidence

that landline local telephone prices have declined significantly since that time.

364 Wilkie, Tr. at 128-29 (“[W]hen economists do careful econometric studies of the degree of substitution

and when we look at the access line, is there any evidence that the wireless substitution is sufficient such that it is in

the same relevant product market, formally in the DOJ sense. They all say no.”); see also Wilkie Presentation, at 4

(“No economic evidence of access substitution”). Studies referenced by Dr. Wilkie include: Michael R. Ward &

Glenn A. Woroch, Usage Substitution between Mobile Telephone and Fixed line in the U.S., Center for Research on

Telecomm. Policy Working Paper (May 2004); Mark Rodini et al., Going Mobile: Substitutability between Fixed

and Mobile Access, 27 TELECOMM. POLICY 457 (2003) (finding evidence of moderate and growing usage

substitution, and second access line substitution, from wireline to wireless, but stating that it would be premature to

infer that mobile service currently constrains landline local telephone market power to any economically significant

degree).

365 Wilkie, Tr. at 129; see also id. at 142-43, 157-59 (describing wireless as a complement rather than

substitute for wireline based on cost, and explaining that the key issue is enough substitutability to affect price).

366 Id. at 129-30.

66

Data indicate that more than 80 percent of residential consumers do not consider mobile

wireless to be a substitute for a landline telephone at current access prices, since they continue to

pay for and use both.361 In addition, there is little evidence that landline telephone companies

consider the threat of wireless substitution sufficient to change their access prices. In response

to customers “cutting the cord,” a telephone company can either lower its prices to all customers

to keep subscribers from switching, or leave prices where they are.362 A company would choose

the first option if the loss of revenue from cord-cutting is expected to be greater than the loss of

revenue from reducing the fees paid by customers who would not switch. If, however, the extent

of wireless substitution in response to price changes is small, the company would choose not to

lower prices. In fact, stand-alone landline access prices have remained relatively stable and do

not appear to have declined substantially below the levels at which they are capped by

regulation.363

Most significantly, Dr. Wilkie observed that econometric analyses of the issue have not

shown that wireless and landline telephone services are in the same product market, though they

may be getting close.364 He concluded that “even though we have the vast migration of minutes,

we don’t see any ability to constrain access pricing.”365 Dr. Wilkie suggested that this issue

could be further studied using number portability data, on the assumption that when customers

are actually substituting a new service for their traditional landline they would want to associate

their old number with the new service.366

Dr. Wilkie concluded that deregulation of the monthly prices consumers pay for landline

telephone service based on the number of wireless providers or number of traditional access lines
367 Id. Other Symposium participants also expressed doubts that wireless was a substitute for wireline. See,

e.g., Canfield, Tr. at 149; Perkins, Tr. at 149-51.

368 See, e.g., Levin, Tr. at 308-10; Kafka, Tr. at 186-87.

67

lost may result in higher prices because it has not been shown that these alternative services are

sufficiently competitive to effectively constrain pricing by the incumbents.367 Although he could

not predict the overall welfare consequences of deregulation given mandated price averaging and

other factors, Dr. Wilkie asserted that current economic evidence does not provide sufficient

assurance that prices would be controlled by the market.

Wireless mobile and landline residential service may become closer substitutes for more

customers in the future. Several Symposium speakers recognized this possibility as advanced

wireless broadband networks are deployed.368

369 Verizon Submission, at 12-27; Verizon Supp. Submission, at 1-4.

370 Report and Order and Further Notice of Proposed Rulemaking, In the Matter of Implementation of

Section 621(a)(1) of the Cable Communications Policy Act of 1984 as Amended by the Cable Television Consumer

Protection and Competition Act of 1992, FCC MB Docket No. 05-311, 22 FCC Rcd 5101 (rel. Mar. 5, 2007) (“FCC

VF Report and Order”), petitions for review denied, Alliance for Community Media v. FCC, 529 F.3d 763 (6th Cir.

2008). Section 621(a)(1) provides that a franchising authority may not unreasonably refuse to award a franchise to

an entrant.

371 The FCC VF Report and Order addresses only the actions and rules of LFAs and does not address

statewide franchising activities. Id. at 22 FCC Rcd 5101, 5102 n.2.

372 If an LFA does not act on an application within 90 to 180 days of an application being filed, the

applicant automatically receives an interim franchise. FCC VF Report and Order, 22 FCC Rcd at 5134. The interim

license continues until the LFA approves the franchise or formally denies the application. The FCC also provides a

list of information that must be included in the application to start the clock and allows the LFA to “stop the clock” if

it issues a request for information. Id. at 5138.

69

III. OBSTACLES TO COMPETITIVE ENTRY

One purpose of the Symposium was to gather information about the various barriers that

may be slowing or deterring entry. Participants identified a variety of regulatory and other

potential barriers to entry and explained their impact. The concerns discussed in this chapter

relate primarily to regulatory issues as well as to conduct by incumbents. Other inherent

economic or technical impediments that make entry less likely – such as the high cost of building

networks in rural areas – are not discussed here. Government action is unlikely to lessen these

obstacles, though their effect on the extent of competition can be significant.

A. MVPD Services

1. Local Franchising Requirements

Companies that want to provide multichannel video services need to obtain a franchise

from either a state or local agency. Entrants have expressed concerns about the local process,

including that incumbent cable providers use it to delay entry and increase entrants’ costs. They

also raised issues with the process itself, alleging, among other things, that it takes too long and

that local franchising authorities demand expensive and inappropriate conditions.369 They have

sought reform of the local franchising process from both the FCC and state legislatures.

On March 5, 2007, the FCC released a Report and Order relating to video franchising.370

In this decision, the FCC adopted rules and guidance to prevent local franchising authorities

(“LFAs”) from unreasonably refusing to grant franchises to new entrants.371 Among other

things, the FCC adopted time limits within which a LFA has to act.372
373 Build-out conditions require the entrant to deploy cable services to parts or all of the franchise area

within a specific period of time.

374 FCC VF Report and Order, 22 FCC Rcd at 5140-44.

375 Id. at 5144-51.

376 Level-playing-field requirements impose on the new entrant the terms and conditions that are in the

incumbent cable company’s franchise.

377 FCC VF Report and Order, 22 FCC Rcd at 5156-64.

378 Second Report & Order, In the Matter of Implementation of Section 621(a)(1) of the Cable

Communications Policy Act of 1984 as Amended by the Cable Television Consumer Protection and Competition Act

of 1992, FCC MB Docket No. 05-311, 22 FCC Rcd 19,633 (rel. Nov. 6, 2007).

379 Tex. Util. Code Ann. §§ 66.001 et seq. (Vernon 2005).

380 Id. at § 66.003.

381 Id. at §§ 66.007 (no build-out requirement), 66.014 (no discrimination based on income).

70

The FCC’s video franchising order also provides guidance on other issues. The FCC

found that imposing “unreasonable” build-out conditions373 on new entrants would constitute an

improper refusal to award a competitive franchise.374 Similarly, the FCC determined that

requiring a new entrant to provide products or services unrelated to the provision of cable

services is unreasonable unless the value of these demands is counted toward franchising fees,

which are capped by law at five percent of cable revenues.375 Finally, the FCC’s order preempts

local franchising rules and regulations, including level-playing-field laws,376 to the extent that

they are inconsistent with the order, unless those rules and regulations are specifically authorized

by state law.377 On November 6, 2007, the FCC adopted a Second Report and Order in this

proceeding, where it extended a number of its rules to franchises issued to incumbents.378

In addition to FCC action, a number of states have passed laws reforming the local

franchising process. These state franchising laws aim to make video entry easier, either by

transferring authority over video franchising from multiple local authorities to a single statewide

agency such at the state public utility commission, or by imposing uniform statewide conditions

– such as timetables for decisions on how local authorities conduct the franchising process. 

Texas was the first state to enact a state franchising law in 2005.379 The Texas law moved cable

franchising authority from the municipalities to the Public Utility Commission of Texas

(“TPUC”) and requires the TPUC to act on a completed franchise application within 17 business

days of receipt.380 Texas has no build-out requirements, although franchisees are prohibited from

denying service based on the income level of an area.381 At this time, 21 states have enacted

reforms to the local franchising process. The vast majority of these states have transferred

franchising authority to a state entity. State franchising legislation is pending in an additional
382 State franchising laws have been enacted in California, Connecticut, Florida, Georgia, Illinois, Indiana,

Iowa, Kansas, Louisiana, Maine, Michigan, Missouri, Nevada, New Jersey, North Carolina, Ohio, South Carolina,

Tennessee, Texas, Virginia, and Wisconsin. State franchising legislation currently is pending in Idaho,

Massachusetts, New York, Pennsylvania, and Washington.

383 See, e.g., Lawton, Tr. at 56; Lawton Presentation, at 4.

384 Lawton, Tr. at 54; Lawton Presentation, at 4.

385 Lawton, Tr. at 62; Lawton Presentation, at 11.

386 Fairfax County Reply Comments, at 26-30.

387 Id. at 4.

388 Id. at 7.

389 Singer Presentation, at 22.

390 Lawton, Tr. at 57-58, 63; Lawton Presentation, at 6.

391 Lawton, Tr. at 64 (“The public and the competitive providers alike will benefit when local government

is supported at the federal level.”); Lawton Presentation, at 12.

71

five states.382 These laws have varying terms and no comprehensive studies of their effects on

the process of video franchising are available as yet.

Several commenters and Symposium participants raised questions about the

appropriateness and efficacy of the FCC’s video franchising order and statewide franchising

laws.383 Lawton, on behalf of Montgomery County, Maryland, noted that without state

franchising legislation and before the intervention of the FCC, Montgomery County already had

three wireline cable franchisees competing head-to-head.384 She argued that there is no evidence

that state franchising laws have resulted in a significant increase in competitive deployment,385 a

point echoed by Fairfax County.386 Although Virginia enacted a law creating an alternative

franchising process, Fairfax County noted that competitive entry occurred in the county before

that law was enacted.387

Fairfax County argued that reasonable build-out requirements not only ensure that every

resident has a choice of at least two competitive wireline providers within a specific period of

time, but also advance a policy of ensuring that every American home has access to advanced

services (such as broadband Internet access).388 Dr. Singer, on the other hand, argued that

entrants should not be burdened with the same build-out requirements imposed on incumbents

because the incumbents’ build out was subsidized by monopoly profits.389

Lawton opined that local regulators are better-equipped to deal with local consumer

complaints and manage local rights-of-way in order to protect the community and prevent

disruption caused by construction.390 She suggested that local, state, and federal governments

need to work together in order to ensure that consumers have access to reliable, equitably-priced

MVPD services.391
392 Thorne, Tr. at 22-23; Verizon Supp. Submission, at 1-4.

393 Verizon Supp. Submission, at 2.

394 Id.

395 Perkins, Tr. at 100-01.

396 Raclin, Tr. at 47; Raclin Presentation, at 8.

397 See Charter Submission, at 4.

398 DOJ Cable Ex Parte Submission, at 3-4.

399 Id. at 4.

72

The potential gains in consumer welfare

from entry are less likely to be realized if

the local franchising process imposes

restrictions or conditions on entry beyond

those necessary to protect important

public policy goals.

Verizon countered that despite improvements over the past year, the local franchising

process continues to pose barriers to competitive entry in terms of both additional costs and

delays.392 Verizon estimated that the average time to obtain a franchise is six to twelve months

in New York and Massachusetts and five to nine months in Pennsylvania.393 None of these states

have statewide franchising laws, although legislation is pending in all of them. Verizon further

noted that almost half of its franchises are located in states that have statewide franchising laws,

even though such states account for less than 25 percent of its residential access lines.394

Cavalier also commented about the difficulties of obtaining franchises in some localities,

although its experience was not uniformly negative.395

Charter disputed assertions that the local franchising process poses a barrier to new

MVPD entry. Raclin, of Charter, stated that his company secured more than 2,000 cable

franchises in an eighteen-month period in the late 1990s.396 However, Charter’s experience is

based on its rapid growth by acquisition of existing cable franchises.397 Such franchise transfers

are not directly comparable to efforts by Verizon or other new entrants to obtain competing

franchises.

The Department has stated in an ex

parte letter to the FCC that entry by the

telephone companies into the MVPD market

may induce not only additional competition

in video distribution, but also quicker

deployment of broadband services to

consumers.398 These potential gains in

consumer welfare are more likely to be

realized if the local franchising process does not impose restrictions or conditions on entry

beyond those necessary to protect important public policy goals (such as preserving the integrity

of public rights of way).399 The Department recommended that the FCC adopt rules or other

guidance that would: (1) establish standard and enforceable time frames for acting on franchise

applications; (2) establish objective criteria for determining what, if any, “concessions” localities

may appropriately demand; and (3) clarify that service areas proposed by the new entrants
400 Id.

401 See, e.g., Letter from Thomas O. Barnett, Asst. Atty. Gen., Antitrust Div., U.S. Dep’t of Justice, to Rep.

Cameron C. Staples & Sen. Eileen M. Daily, Co-Chairs, Jt. Comm. On Fin., Rev. & Bonding, State of Connecticut

(Apr. 30, 2007) available at http://www.usdoj.gov/atr/public/comments/223435.htm (“Barnett Letter”). In addition

to Connecticut, similar letters were sent to Florida, Illinois, Massachusetts, Minnesota, Nevada, Ohio, Tennessee,

and Wisconsin and can be found at http://www.usdoj.gov/atr/public/comments.

402 See, e.g., Barnett Letter, and similar letters to other states.

403 Thorne, Tr. at 25. See also Goodman, Tr. at 34-35 (discussing MDUs).

404 FCC MDU Exclusivity Report & Order. In its Further Notice of Public Rulemaking in this proceeding,

the FCC sought comment on whether this prohibition should be extended to DBS and private cable operators. Id.,

22 FCC Rcd at 20,236.

405 Id. at 20,329. MDUs are defined in the order to include apartment, cooperative and condominium

buildings as well as gated communities, mobile home parks, garden apartments, and other centrally managed real

estate developments. Id. at 20,238-39.

406 Id. at 20,237.

73

should be approved unless there is credible evidence that the proposed service areas are intended

to discriminate against low-income residents.400

In addition to filing its ex parte letter in the FCC proceeding, the Department also sent

letters to nine states considering statewide franchising legislation.401 The letters cited evidence

that the local franchising process can and has posed in some situations unreasonable barriers to

competitive entry.402 Continuing reduction of regulatory entry barriers in the video franchising

process and elsewhere is supported by the identifiable consumer benefits that can be realized

from entry, though reduction of entry barriers does not foreclose a role for local authorities in

legitimate consumer protection efforts. Local governments have traditionally had

responsibilities to ensure their citizens’ safety and to preserve the integrity of their public rights

of way, and the Department is not suggesting that local governments should have no role in

regulating MVPD providers within their jurisdictions related to those legitimate functions. 

However, regulatory restrictions that make it difficult for companies to enter markets tend to

shield incumbents from competition and lead to higher costs, reduced innovation, and

diminished choices for consumers.

2. Access to Multiple Dwelling Units

Verizon asserted that not being able to obtain access to multiple dwelling units

(“MDUs”) is one of the largest barriers to MVPD entry.403 On November 13, 2007, the FCC

released an order prohibiting the enforcement of existing exclusivity contracts as well as the

execution of new exclusive agreements between certain MVPD providers and MDU owners.404

The FCC has not required landlords to allow multiple carriers to serve a building, but only

addressed the legality of agreements precluding such entry. In its order, the FCC cited statistics

showing that approximately 30 percent of the U.S. population now live in MDUs and that the

number is growing.405 The FCC found that exclusivity clauses were widespread and that

incumbent cable operators have increased their use of exclusivity clauses.406 Although the FCC
407 Id. at 20,248.

408 On January 16, 2008, the National Multi Housing Council (“NMHC”) and the National Apartment

Association (“NAA”) filed a petition in the United States Court of Appeals for the District of Columbia Circuit

seeking to vacate the FCC MDU Exclusivity Report and Order on the grounds, inter alia, that it exceeds the FCC’s

statutory authority and constitutes a “taking” in violation of the Fifth Amendment. That same day, the NCTA also

filed a petition and the two cases have now been consolidated. On January 22, 2008, the NCTA filed an emergency

motion for a stay of the FCC MDU Exclusivity Report & Order pending judicial review, which was denied by the

Court on February 28, 2008 in a per curium opinion. See Docket, Nat’l Cable Telecomm. Ass’n v. FCC, Nos. 08-

1016 & 08-1017 (D.C. Cir. current through Aug. 11, 2008).

409 For a more complete discussion of the Department’s views on exclusive agreements see U.S. DEP’T OF

JUSTICE, COMPETITION AND MONOPOLY: SINGLE-FIRM CONDUCT UNDER SECTION 2 OF THE SHERMAN ACT (2008),

Chapter 8.

410 BSPA Submission, at 13-14. This position was echoed by the Coalition for Competitive Access to

Content (“CA2C”) in its comments filed with the FCC. Comments of the CA2C, In the Matter of Review of the

Commission’s Program Access Rules and Examination of Programming Tying Arrangements, FCC MB No. 07-198,

at 2 (filed Jan. 4, 2008) (“Comments of CA2C in the FCC’s NPRM on Program Access & Tying Arrangement”). 

CA2C members include AT&T, BSPA, DIRECTV, Embarq, Hiawatha Broadband, Independent Telephone and

Telecommunications Alliance (“ITTA”), Knology/PrairieWave, Media Access Project (“MAP”), Organization for

the Promotion and Advancement of Small Telecommunications Companies (“OPASTCO”), RCN, SureWest,

USTelecom, and WOW! Internet, Cable and Phone.

411 Comments of the Broadband Service Providers Association, In the Matter of Review of the

Commission’s Program Access Rules and Examination of Programming Tying Arrangements, FCC MB No. 07-198,

at 3 (filed Jan. 4, 2008); see also Verizon Submission, at 27-29.

74

acknowledged that exclusivity clauses “may in certain cases be beneficial, at least in the short

term, to consumers,” it nonetheless concluded that “harms of exclusivity clauses outweigh their

benefits.”407 The FCC’s order has been challenged by several MDU associations as well as the

NCTA.408

Apart from such regulatory action, agreements entered into by an incumbent in a market

to block entry of a competitor can also, depending on the facts, violate antitrust law. However,

exclusive dealing arrangements can also benefit consumers. For example, such an agreement

may provide incentive for the provider to upgrade facilities in a building by ensuring that the

costs can be recouped. Antitrust analysis needs to take into account the potential for both the

positive and negative impacts from an exclusive agreement.409 The Department has in the past

and will continue to investigate allegations that such conduct is anticompetitive and take

appropriate enforcement action where appropriate.

3. Access to “Must-Have” Programming

The BSPA argued that video competition would be seriously impaired without

guaranteed access to certain content even “[i]f every other issue that historically has been

identified as a potential barrier to competitive video entry . . . were fully resolved.”410 According

to the BSPA, “[e]xclusivity and discrimination in access to programming are the most powerful

tactics that incumbent operators use in an effort to block or otherwise constrain wireline

competition.”411
412 FCC Exclusivity Sunset Report & Order, 22 FCC Rcd at 17,792.

413 Id. at 17,810.

414 Id.

415 Id. at 17,819 (“We remain convinced . . . that, with regard to RSNs and programming with similar

characteristics (such as popularity and similar monthly per subscriber affiliate fee and network advertising revenue),

withholding programming from rivals can be a profitable strategy for a vertically integrated cable programmer and

that such withholding can have a significant impact on a subscribership to the rival MVPDs. Such practices, in turn,

predictably harm competition and diversity in the distribution of video programming, to the detriment of

consumers.”).

416 Id. at 17,817-18.

417 Id. at 17,835.

418 Id. (citing § 628(c)(2)(D)&(4), codified at 47 U.S.C. § 548(c)(2)(D)&(4)).

419 The FCC reaffirmed its previous ruling that § 628(c)’s prohibition on exclusive arrangements involving

vertically-integrated cable programming is limited to programming that is delivered via satellite to the MVPD

provider for distribution to that providers’ end-user customers. Id. at 17,844-45. This limitation created a

“terrestrial loophole” from the exclusivity prohibition for programming, typically of a local or regional nature, that is

delivered by terrestrial fiber. See Goodman, Tr. at 35. Programming subject to § 628(c) does not include

programming that is distributed to end users via direct broadcast satellite by one of the two DBS providers.

420 FCC Exclusivity Sunset Report & Order, 22 FCC Rcd at 17,859-67.

75

On October 1, 2007, the FCC extended for five years its existing prohibition on exclusive

arrangements related to cable programming that is delivered via satellite and owned by

companies that are also MVPDs.412 In so doing, the FCC specifically found that such verticallyintegrated cable programmers have increased incentives and ability to foreclose access to certain

“must-have” programming to their MVPD rivals.413 The FCC based its holding in part on

“specific factual evidence that, where the exclusive contract prohibition does not apply, such as

in the case of terrestrially delivered programming, vertically integrated programmers have

withheld and continue to withhold programming from competitive MVPDs.”414 The FCC found

this to be especially true of regional sports networks (“RSNs”), which are highly valued by

MVPD subscribers and for which there are no adequate substitutes.415 The FCC concluded that

continued access to this programming is necessary for competition in the MVPD market to

remain viable.416 While the FCC recognized “the benefits of exclusive contracts and vertical

integration cited by some cable MSOs, such as encouraging innovation and investment in

programming and allowing for ‘product differentiation’ among distributors,” the FCC

nonetheless held that the anticompetitive effect of lifting the exclusivity ban outweighed these

purported benefits.417 In so holding, the FCC noted that the 1992 Cable Act grants verticallyintegrated cable programmers the right to petition for a waiver of the ban.418

In its FCC Exclusivity Sunset Report and Order, the FCC sought comments on a number

of programming issues, including the need to extend its prohibition on exclusive arrangements to

terrestrially-delivered programming,419 as well as forced bundling and tiering requirements.420

The BSPA argued that the FCC should close the terrestrial loophole because a MVPD provider
421 Goodman Presentation, at 10-11; see also Comments of CA2C in the FCC’s NPRM on Program Access

& Tying Arrangements, at 14.

422 Comments of Verizon Communications Corp., In the Matter of Review of the Commission’s Program

Access Rules and Examination of Programming Tying Arrangements, FCC MB No. 07-198, at 6 (filed Jan. 4,

2008)(“Comments of Verizon in the FCC’s NPRM on Program Access & Tying Arrangements”).

423 Id. at 6 (citations to Program Access Complaint omitted). The FCC identified other instances where

incumbent cable operators have denied competitors access to vertically-integrated RSNs, including in Philadelphia,

San Diego, and elsewhere. See FCC Sunset Exclusivity Report and Order, 22 FCC Rcd at 17,823-26.

424 Comments of Verizon in the FCC’s NPRM on Program Access & Tying Arrangements at 7. In support

of its position, Verizon notes, “More than one-third of American households already have an HD television

(“HDTV”) set, and HDTV sales are growing at an astonishing 50% per year. By 2011, according to estimates by the

Consumer Electronics Association, the number of HDTVs sold in the United States will reach 170 million, which is

roughly one set for every two Americans.” Id.

425 “Given this vibrant competition,” the NCTA argues, “it is time for a less regulatory, more market-driven

approach[.]” NCTA Program Access Comments, at 2. Consequently, the NCTA opposes extension of the program

access rules to terrestrially delivered programming. Id. at 10. Cablevision echoes the points made by the NCTA. 

Comments of Cablevision Systems Corp., In the Matter of Implementation of the Cable Television Consumer

Protection and Competition Act of 1992: Development of Competition and Diversity in Video Programming

Distribution: Section 628(c)(5) of the Communications Act: Sunset of Exclusive Contract Prohibition, FCC MB

Docket No. 07-29, at 3-4 (filed Jan. 4, 2008). Cablevision also questions the FCC’s legal authority to extend the

exclusivity ban to terrestrially delivered program offerings, including HD offerings. Id. at 13-19.

76

must have access to certain programming (such as RSNs) in order to be a viable competitor.421

Verizon echoed these concerns, stating that the company has been denied access to such

programming. According to Verizon, Rainbow Media Holdings, LLC (“Rainbow”), initially

refused to provide Verizon access to Rainbow’s RSNs in the New York City metropolitan area

and New England.422 Rainbow is owned by the incumbent cable operator, Cablevision Systems,

Inc. Verizon eventually obtained the standard definition version of this sports programming

after filing a program access complaint with the FCC.423 However, Verizon claims that Rainbow

has declined to sell Verizon HD feeds of its terrestrially delivered RSNs in the New York City

metropolitan area. In addition to RSNs, Verizon also advocates extending the ban on exclusive

contracts to terrestrial HD feeds of programming that is otherwise subject to the program access

rules.424 However, the NCTA disagreed with the BSPs and ILECs, saying such regulation is

unnecessary as the MVPD market is more competitive now than in 1992, when the program

access rules were promulgated.425

In several investigations the Department has examined whether allowing an MVPD

provider to own alleged “must-have” programming would adversely impact consumers and

whether vertically integrated providers’ refusal to license such programming violates antitrust

law. The analysis included examining the incentive and ability of the provider to disadvantage a

competitor given the attractiveness of the programming and the cost to the provider of

withholding the programming. The Department also considered whether there were efficiencies

associated with vertical integration or procompetitive reasons for refusals to license. The

Department will continue to investigate allegations that such conduct is anticompetitive and take

enforcement action where appropriate.
426 See DOJ Pennsylvania PUC Comments (recommending reform of Pennsylvania’s procedures for

certification of competitors to provide facilities-based telephony services in rural areas to promote more rapid entry).

427 See, e.g., Six MSA Order, 22 FCC Rcd at 21,302-03; Virginia Order.

428 Comments of Covad Communications, NuVox Communications, and XO Communications, LLC, for

inclusion in the 2007 DOJ Telecommunications Symposium, Nov. 13, 2007 (“Covad Submission”).

429 Id. at 2. A copy of the QSI study is appended to the October 29, 2007 Ex Parte Letter contained in the

Attachments to the CLEC Commenters letter (Tab 17 under “Forbearance”).

77

B. Local Telephone Services

Unlike the telephone companies that have begun providing video over their own facilities

in the last three years, cable operators and wireless providers have benefitted in the last decade

from the 1996 Act and the rules and procedures adopted by the FCC and states to open local

telephone markets to competition. While many states require certificates for providing local

exchange service, the difficulties encountered in obtaining state certification usually are not

comparable to the local franchise requirements faced by video entrants. Therefore, in telephony

there appear to be fewer regulatory barriers to facilities-based entry than in video programming,

with the exception of rural areas where some states have more difficult certification

requirements.426 Companies seeking to provide telephone services did raise concerns related to

current proceedings at the FCC and state public service commissions evaluating whether certain

types of regulatory requirements should be eliminated, as well as problems in obtaining

cooperation from incumbents, and access to multi-tenant buildings and master-planned

communities, as discussed below.

1. Forbearance Proceedings and Requests to Deregulate Local Services

Many Symposium participants commented on proceedings pending before the FCC and

state regulatory bodies in response to ILEC petitions to be relieved of obligations imposed by the

1996 Act or price regulations mandated by the states.427 The outcome of these proceedings

depends in large part on the regulatory agency’s analysis of whether existing competition is

sufficient to make the regulation unnecessary. Comments addressed mainly two topics: (1) the

competitive analysis used in deciding that the existing regulations were not needed to protect

consumers; and (2) the effect of regulatory uncertainty on decisions by companies to provide

telephone services.

Covad Communications, NuVox Communications, and XO Communications, LLC

(“CLEC Commenters”)428 submitted a compendium of materials expressing their concerns about

a number of issues, including requests by several ILECs for forbearance from regulations

regarding UNEs and other regulatory obligations. The CLEC Commenters stated that facilitiesbased CLECs rely on UNEs obtained from incumbent telephone companies to compete in

telecommunications markets. They cited a study by QSI Consulting purporting to show that

granting forbearance requests with respect to UNEs would greatly increase consumers’

telecommunications expenses.429 The CLEC Commenters also contended that the FCC is given
430 Covad Submission, at 3.

431 Id.

432 See Perkins, Tr. at 106-07.

433 See, e.g., Reply Comments of Verizon, Petitions of the Verizon Telephone Companies for Forbearance

Pursuant to 47 U.S.C. § 160(c) in the Boston, New York, Philadelphia, Pittsburgh, Providence, and Virginia Beach

Metropolitan Statistical Areas, FCC WC Docket No. 06-172, at 6-7 (filed Apr. 18, 2007).

434 Perkins, Tr. at 106.

435 Id. at 107.

78

Regulators should evaluate the need for

future regulation and continually reassess 

whether existing rules discourage efficient

investment in new facilities or have other

negative impacts.

insufficient information to make the required competitive determinations.430 Among other

things, the CLEC Commenters cited the lack of reliable data sufficiently disaggregated to

evaluate the state of facilities-based competition at individual wire centers or local switching

points.431 Cavalier also raised concerns about the effects of regulatory forbearance.432

ILECs seeking forbearance strongly

disagree. They contend that they face

extensive competition and that regulation

may deter investment.433 They also contend

that changes are necessary to ensure

regulatory parity because cable companies

and other entrants are not subject to the same

requirements.

During the Symposium, other speakers commented on whether the benefits of imposing

UNE obligations outweigh the negative impacts. As described in more detail in Chapter II.B.2,

Dr. Hazlett contended that regulations requiring incumbent telephone companies to make their

facilities available to entrants diminish the incumbents’ incentives to invest in new facilities and

technology. To support his view, he compared the telephone companies’ share of broadband

subscribers while they were subject to “line sharing” regulation and after the regulations were

lifted to the share of the cable companies that were never subject to sharing requirements. He

credited repeal of the regulations with spurring the telephone companies to make the investment

necessary to attract more subscribers.

Cavalier, a CLEC that combines UNE loops with its own facilities, said that being able to

access the incumbents’ last-mile facilities allows it to innovate by offering higher Internet speeds

and video using IPTV over copper wires.434 In addition, the company is able to offer a tripleplay bundle for a lower price than the cable or telephone companies. Finally, Cavalier

contended that without UNEs, consumers in many areas would be faced with a duopoly, thus

defeating the goals of the 1996 Act.435

In addition, some entrants suggested that the uncertainty created by state and federal

proceedings relating to unbundling, retail rate deregulation, intercarrier compensation, the
436 See generally Wilson, Tr. at 93-96.

437 Perkins, Tr. at 104.

438 Wilkie, Tr. at 125-26.

439 Id. at 127-28.

440 Id. at 134-40.

441 Perkins, Tr. at 105.

442 Report and Order, In the Matter of Promotion of Competitive Networks in Local Telecommunications

Markets, FCC WT Docket No. 99-217, 23 FCC Rcd 5385 (rel. Mar. 21, 2008). The FCC had previously prohibited

such contracts in commercial settings. Id. at 5385.

443 Id. at 5385-86.

444 Electronic Submission by Phillip K. Sotel, General Counsel, on Behalf of Accipiter Communications

Inc. (dba Zona Communications), for inclusion in the 2007 DOJ Telecommunications Symposium, Nov. 27, 2007

(“Accipiter Submission”), at 1. Accipiter’s operations are “conducted entirely as an ILEC in a rural service area of

about 1000 square miles in the Arizona counties of Maricopa and Yavapai.” Id.

79

universal service fund, and other issues may deter competitive entry.436 All of these issues could

have an impact on either the cost of an entrant’s service or the price charged by the incumbent

against which the entrant must compete. Cavalier said that constant regulatory battles drive up

costs and act as a barrier to investment.437

Dr. Wilkie cautioned against a “rush” to regulate or deregulate.438 He provided several

examples to illustrate why defining the appropriate product market may not be straightforward,

including determining whether the market is a bundled product or separate products of voice,

video, and broadband. He also cautioned that it matters what geographic market definition is

used. Using national averages is misleading as the number of competitors may be very different

in rural markets than in some urban areas.439 Finally, Dr. Wilkie pointed out that users of

telecommunications services appear to be “sticky” in that they do not switch services frequently

and that product differentiations and bundling may make consumers even stickier. He

recommended further study to analyze how the unwillingness of customers to switch providers

and the efforts of providers to differentiate their offerings impact competition.440

2. Access to Customers in Multiple Dwelling Situations

Perkins, of Cavalier, also noted problems accessing customers in multi-tenant

buildings.441 Subsequent to the Symposium, the FCC addressed this problem by issuing rules

prohibiting telephone carriers from entering into contracts with owners of residential multiple

tenant environments that restrict consumers’ access to other telecommunications providers.442

The FCC found that such agreements perpetuate barriers to entry.443

Accipiter Communications, Inc., dba Zona Communications, filed comments identifying

problems obtaining access to compete in newly-built communities.444 The company noted that in

areas where Accipiter is the certified ILEC, builders constructing new developments have
445 Id. at 3. Dr. Wilkie also noted problems with master plan communities. Wilkie, Tr. at 140-41.

446 Concerns were also raised about Verizon’s practice of removing copper wires when it installs its FiOS

service. CLECs said that the removal of these wires prevent them from providing broadband and other services in

competition with the ILECs. See Perkins, Tr. at 97-100: Perkins Presentation, at 6; Covad Submission at 4-5. 

Verizon contends that savings from not maintaining copper plant helps to offset the cost of installing the fiber-based

facilities used to offer FiOS. Thorne, Tr. at 17; see also Verizon Submission, at 1, n.1 and Verizon Supp. Submission

at 13 (estimating annual cost savings of $110 per home served over fiber rather than copper).

80

Preferred provider arrangements can

exclude competitors from serving new

developments, but they also can be

beneficial by ensuring that residents

receive services in a timely manner.

allegedly entered into preferred provider agreements (“PPAs”) with another telecommunications

provider allowing it to construct its network as the development is being built. According to

Accipiter, this agreement provides valuable advantages to the preferred provider who in return

agrees to share revenue from the telecommunications services with the developer. By

discriminating against the certified ILEC in terms of making trenches available only to the

preferred provider, the developer gives an important competitive advantage to its partner and

therefore increases the revenue that it receives from the sale of telephone and video services.

Accipiter recognized that PPAs offer

legitimate advantages to developers. In

particular, providers may be unwilling to

make the large capital investment required to

serve a new development without some way

to recoup their investment. By agreeing to a

PPA, developers are assured that voice,

video, and broadband services will be available when the first resident moves in before the

development’s population is sufficient to justify the provider’s investment. However, Accipiter

regarded regulation of such agreements as necessary to prevent anticompetitive abuses that harm

consumers. Hence the company concluded that “when these PPAs are used to exclude

competitors or as a methodology to bar entry into new markets by unnecessarily increasing the

costs and/or uncertainties to other entrants whether through fees, delays in build out or

marketing/sales [advantages] . . . . they should be prohibited.”445

As noted above in the discussion of exclusive agreements between cable companies and

MDU owners, agreements entered into by one provider in a market to block the entry of another

competitor can also, depending on the facts, violate antitrust law.446

C. Broadband Providers

Broadband providers and others raised a number of concerns regarding the availability of

spectrum, regulations about how spectrum can be used, and other regulatory issues.
447 Hazlett, Tr. at 177-78.

448 Id. at 257-58, 264-65.

449 Salemme, Tr. at 256; Wallace, Tr. at 261. On November 4, 2008, the FCC approved an order opening

television white spaces for use on an unlicensed basis by certain portable devices. FCC Dedicates TV White Spaces

to New Generation of Unlicensed Mobile Devices, COMM. DAILY, Nov. 5, 2008, at 1.

450 Hazlett, Tr. at 179.

81

Innovation is more likely to occur if

providers have flexibility to decide how

spectrum can be used.

1. Spectrum Policies

Spectrum is critical for providers to enter or expand the provision of wireless services. 

Several Symposium participants mentioned the need for more spectrum to be made available. 

Dr. Hazlett said that the government needs to review how spectrum is being used and make

underutilized spectrum available to new users faster. He said the United States lagged behind

Europe by several years in issuing both 2G and 3G spectrum licenses. Because spectrum was

not available through FCC auctions, Dr. Hazlett said wireless carriers merged in order to obtain

sufficient bandwidth to upgrade their networks to mobile broadband. He indicated this is what

motivated Cingular to acquire AT&T Wireless and Sprint to acquire Nextel.447

Dr. Hazlett maintained that there is no shortage of spectrum that could be made available

for broadband services. For example, after the digital television transition, the television band

will have 294 MHz of almost entirely unused spectrum. All over-the-air broadcasting could be

provided digitally on a small fraction of the available spectrum. The broadcast spectrum could

be better utilized by grandfathering existing broadcasters and issuing overlay rights that would

allow the efficient reallocation of shared spectrum between the broadcasters and new entrants. 

This policy would make additional spectrum available to wireless service providers to provide

broadband services.448 The unused portions of these spectrum bands are often referred to as

“white spaces.” Other speakers also suggested that the FCC should take action on this issue.449 

In Dr. Hazlett’s view, the FCC’s failure to make more spectrum available to wireless

carriers and new entrants more quickly is balanced in part by the FCC’s decision not to place

extensive restrictions on how the wireless carriers can use the spectrum they license. In the

United States, the FCC did not choose one wireless technology, but allowed each wireless carrier

to choose its technology. In contrast, European regulators restricted carriers to using GSM

technologies. Subsequently, Europe liberalized its carriers’ ability to utilize CDMA because it

has worked better with 3G technology. The utilization of two technologies by U.S. wireless

carriers has fostered competition between EV-DO and Wideband CDMA (“WCDMA”)

advanced broadband technologies.450

According to Dr. Hazlett, regulators

that adopt the “property rights model”

provide flexibility for wireless carriers to

determine how best to use their spectrum

licenses. Investment in broadband services is

stimulated by letting the market work out business models, technologies, and services provided. 

Dr. Hazlett argued that this model has resulted in U.S. cellular markets being successful in
451 Id. at 181-83.

452 The FCC imposed open access conditions on the C-block of the 700 MHz auction.

453 Salemme, Tr. at 256.

454 Id. at 256.

455 Id. at 261-62.

456 Wallace, Tr. at 233.

457 Id. at 261.

458 Shen, Tr. at 212; Shen Presentation, at 7.

459 Kafka, Tr. at 263-64.

82

keeping broadband prices relatively low, even though the regulators have not made much

spectrum available.451 He disagreed with the current move to re-regulate in some of the 700

MHz proceedings,452 advocating retention of the property rights model given its effectiveness.

Salemme, of Clearwire, agreed that it is important to increase the amount of spectrum

available for two-way communications because more spectrum brings more competition, higher

speeds, and additional services.453 Additional spectrum could be provided by converting the

currently unlicensed 3.65 MHz band to licensed spectrum (white spaces), and making AWS-3

spectrum available. New technology has made wireless services possible on spectrum that had

previously been considered unusable.454 Clearwire also wants spectrum to be efficiently

allocated without the FCC placing limits on how much spectrum a company can own, allowing

companies to have the spectrum they need to provide broadband services.455

Wallace, of DigitalBridge, agreed that making more spectrum available is important and

said he supports competitive bids in auctions granting rights to use white spaces.456 He

cautioned against conditioning licenses by specifying what services the winner can offer.457 Bin

Shen, of Sprint Nextel, also noted that the speed at which his company can offer WiMAX

service in currently unlicensed areas will be affected by whether clear rules and dates are

established for the auction of white space spectrum.458

Overall, AT&T does not perceive any major barriers to entry in the wireless broadband

market. AT&T maintained that spectrum rules have to allow for the use of different

technologies and business models.459

2. Other Regulatory Issues Affecting Broadband Deployment

Though broadband is less regulated than either voice telephony services of the telephone

incumbents, or video services of the cable companies, there are still some regulatory issues that

may affect broadband deployment.
460 Herron, Tr. at 300.

461 New Technologies, COMM. DAILY, Jan. 25, 2008, at 15.

462 Pub. L. No. 110-140, 121 Stat. 1492 (2007).

463 Herron, Tr. at 301-02.

464 Id. at 301-02.

465 Id. at 302.

466 Wallace, Tr. at 233.

467 Salemme, Tr. at 223; Salemme Presentation, at 13.

468 Salemme, Tr. at 225; Salemme Presentation, at 13.

83

Herron, of Current, pointed to regulations that in his view slow the adoption of BPL and

Smart Grid. He said that the traditional forms of utility rate regulation provide no incentives for

utilities to reduce energy consumption. Utilities are compensated based on how much volume

goes through their grid, so that if utilities invest in efficient delivery systems, they lose

revenue.460 This provides a disincentive to use Smart Grid, which in turn is important for the

adoption of BPL.

Congress and some states have taken steps to encourage the adoption of more energy

saving and reliable networks.461 In addition, the Energy Independence and Security Act of 2007

sets as a national policy the implementation of Smart Grid systems to modernize the electric grid

and requires both federal and state governments to support the use of Smart Grid. It provides for

loans and federal contributions to establish Smart Grid demonstration projects.462

Current also indicated that it has had problems obtaining the rights to access utility and

telephone poles, which it needs to deploy its network and attach to the utilities’ medium and low

voltage lines.463 As the last company to attach its wires to the poles, Current has experienced

difficulties getting a clear space and has had to fix others’ violations.464 In addition, both times

Current deployed BPL, incumbent telephone carriers have sued it over pole attachment issues,

causing delays for Current’s entry.465

Wallace, of DigitalBridge, commented on the need for timely tower access, which is

more difficult to obtain when the only towers available are cellular towers not owned by

independent companies.466

Finally, Salemme, of Clearwire, expressed the view that, in order for alternative

broadband platforms to succeed, companies need regulatory stability and certainty, because these

efforts require considerable up-front capital and the financial markets want certainty about how

the companies will be treated.467 He also noted that, as services converge, legacy regulations and

requirements such as CALEA and E911 have to be adapted to the new underlying

technologies.468
469 Shen, Tr. at 211-12; see also Shen Presentation, at 7. Sprint Nextel detailed these concerns in a separate

letter prepared for the Symposium. Written Comments by Robert S. Foosaner, Senior Vice President - Government

Affairs and Chief Regulatory Officer, on behalf of Sprint Nextel Corp., for inclusion in the 2007 DOJ

Telecommunications Symposium, Nov. 13, 2007 (“Sprint Submission”). Sprint Nextel also submitted comments

that it filed on this subject with the FCC. Comments of Sprint Nextel Corporation, In the Matter of Special Access

Rates for Price Cap Local Exchange Carriers, FCC WC Docket No. 05-25 (filed Aug. 8, 2007); see also Comments

of T-Mobile Corp., In the Matter of Special Access Rates for Price Cap Local Exchange Carriers, FCC WC Docket

No. 05-25 (filed Aug. 8, 2007); Reply Comments of T-Mobile Corp., In the Matter of Special Access Rates for Price

Cap Local Exchange Carriers, FCC WC Docket No. 05-25 (filed Aug. 15, 2007).

470 Shen, Tr. at 211.

471 Id. at 212.

472 Sprint Submission, at 2.

473 Shen, Tr. at 211-12.

474 Sprint Submission, at 6.

475 Id. at 7-8.

476 Wallace, Tr. at 233; Wallace Presentation, at 5.

84

3. Prices for Local Private Lines

Several speakers and one company that submitted written comments raised issues related

to obtaining local private line services (local leased circuits dedicated to the use of a particular

customer) from the ILECs to support their network operations.469 A wireless carrier that does not

have a terrestrial network of its own needs to obtain local private line services to carry its traffic

between its switches and cell towers, or to provide interoffice transport through the ILEC’s

network beyond the initial switching center to other end offices, an activity known as

“backhaul.” In most areas wireless carriers obtain these connections by buying “special access”

circuits (local private lines provided under tariffs) from the ILEC.

Shen, of Sprint Nextel, stated that in order for his company to provide its broadband

alternative, it must purchase these local private line services for backhaul from its major wireline

and wireless broadband competitors.470 According to Shen, AT&T and Verizon combined

account for 82 percent of nationwide special access revenues.471 In January 2007, Sprint Nextel

found through a survey of alternative access providers that competitive alternatives for the

ILECs’ special access services were available at less than two percent of its cell sites.472 The

fees charged by incumbents to connect cell sites to switches are in Sprint Nextel’s view

excessively high and affect its ability to offer its broadband wireless services at a competitive

rate.473 Sprint Nextel said that AT&T and Verizon have the incentive and ability to raise their

competitors’ costs in the provision of broadband Internet access services.474 Sprint Nextel is also

concerned that certain special access contract provisions hinder the development of alternative

providers.475

Wallace, of DigitalBridge, said his company is able to enter in communities only where it

can obtain low-cost and high-capacity backhaul.476 DigitalBridge is more likely to find the low-
477 Wallace, Tr. at 233.

478 Public Notice, In the Matter of Special Access Rates for Price Cap Local Exchange Carriers, FCC WC

Docket No. 05-25, 22 FCC Rcd 13,352 (released July 9, 2007).

479 See Supplemental Comments of AT&T Inc., In the Matter of Special Access Rates for Price Cap Local

Exchange Carriers, FCC WC Docket No. 05-25, at 1-2 (filed Aug. 8, 2007).

85

cost local private lines it needs in areas where there are three or four competitors.477 Issues

relating to special access pricing are currently the subject of an FCC proceeding.478 The ILECs

have filed comments in this proceeding disputing the assertions discussed above. They allege

that special access markets are competitive, rates have been falling, and no action by the FCC is

required.479

Sound decision making about the need to regulate or reinstate safeguards depends on a

careful assessment of competitive conditions based on clear data and following generally

accepted principles of competition analysis. Regulators also need to consider the cost of

imposing regulations, including the impact of regulation on the incentives of providers to invest.

87

IV. OBSERVATIONS AND CONCLUSIONS 

FOR COMPETITION POLICY

A. General Competitive Trends

Overall, the competitive trends in telecommunications services are positive. Companies

continue to invest significant sums to build new facilities or upgrade existing ones, providing

customers with better services and more choices. Landline facilities-based competition is

available for most U.S. consumers in broadband and telephony and is beginning to spread in

video as well. However, the extent and nature of competition varies substantially from one

geographic area to another. While the available data make it possible to evaluate broad

nationwide trends, it is considerably more difficult to evaluate the state of competition in any

specific area. In addition, public data that would allow meaningful analyses of the effect of

developments (such as bundled services), differences in the quality and quantity of service

offerings, and substitution between formerly distinct categories of services (such as wireline and

wireless) are often limited or unavailable.

Multichannel Video Programming Distribution. The principal competitive alternative to

the incumbent cable television companies remains satellite-based DBS services. In an increasing

number of areas, wireline MVPD competition is also available from telephone companies or

overbuilders, though this option so far is available to only a small minority of U.S. residential

consumers.

Consumers today are able to purchase video services that offer higher quality pictures,

more channels, and other features. These improvements are in part a direct result of the entry of

MVPD providers to challenge the cable companies. It is more difficult to draw definitive

conclusions from the available information regarding the price benefits of competitive entry that

has occurred in video services. Whether price benefits have been realized by consumers, and to

what extent, may depend on various factors, including how to assess the value of quality

improvements that have accompanied price increases and whether consumers value bundled

services. There is evidence that competitive entry has resulted in lower prices for some

consumers, particularly bundled service users, even as other stand-alone prices have remained

the same or continued to increase. Variations in offerings, the availability of special promotions,

and other factors make such assessments complex.

Voice Telephone. Competition for residential consumers occurs primarily between the

ILECs and cable companies. In some areas, however, competition is supplemented by facilitiesbased overbuilders or companies that obtain last-mile connections from the incumbent telephone

companies. Local telephone subscribers in many areas continue to experience increased choices,

notwithstanding the loss of UNE-P as a mode of entry. The success of cable operators is the best

evidence that facilities-based competition is economically feasible for residential telephone

service, at least for operators that have made the investment in wireline connections to the home

that can be used to provide multiple services.
88

One major question is whether mobile or fixed wireless services are effective competitors

to the incumbents’ wireline telephone services. Although traditional mobile wireless services

have taken considerable amounts of traffic from landline telephony and some customers, the

available evidence does not establish that mobile services currently represent an effective

competitive constraint on landline access pricing. Consistent with that observation, wireline

telephone prices have remained relatively stable except where telephony is offered in a bundle

with video and broadband.

Broadband. Competition for residential customers so far occurs primarily between two

major providers, the cable company and the telephone company. In some areas, facilities-based

overbuilders or companies obtaining last-mile connections from the telephone incumbents are

also offering broadband, and fixed wireless broadband services are beginning to develop in

limited geographic areas.

There are still rural areas where residential customers do not have access to terrestrial

broadband services. In these areas, satellites are used to deliver broadband. However, satellite

service providers are not effective competitors to landline broadband providers where both offer

service because the price of satellite service is substantially higher. Satellite broadband service

providers do not offer voice telephony or MVPD services over their own facilities.

Companies such as the new Clearwire joint venture are investing in wireless broadband

service, and some believe that this technology is a promising way to provide a “third wire” to

consumers’ homes. However, it is unclear whether wireless broadband providers will have a

substantial impact on the marketplace. New entrants may have a limited impact due to restraints

on available spectrum, limitations of the technology, and the difficulty of competing against

better-positioned incumbents that have first-mover and scale and scope advantages. Recent FCC

spectrum auctions have not resulted in the emergence of a new nationwide wireless provider.

Bundling. A potentially important competitive development in the marketing and

pricing of telephony, broadband, video, and wireless has been the offering of “triple-play” or

“quadruple-play” bundled services. These bundles, at least initially, have been priced

attractively for many consumers compared with stand-alone services of the same provider, and

they have reduced customer churn. Increasing numbers of consumers have been subscribing to

triple-play bundles of video, voice telephony, and broadband. Some providers reported that

more than 30 percent of their subscribers buy triple-play bundles. It is not yet clear how

bundling of services will impact competition and consumer welfare.

B. Barriers to Entry

Symposium participants discussed a variety of possible barriers to entry in video,

telephony, and broadband services. They differed in their views about whether significant

barriers continue to exist. Given the continuing high cost of constructing networks, especially in

rural areas, competition may continue to be limited in some areas. While inherent “natural”

entry barriers of this kind can significantly affect markets, the barriers to entry highlighted in this

report are those that result from regulatory policy or conduct of incumbent providers.
89

Some panelists contended that regulatory barriers remain in video franchising and have

adversely affected consumers, including unreasonable demands by local franchising authorities

and conduct by incumbents seeking to block or delay entry. Others, including cable companies

and local franchising authorities, defended the role of franchising in consumer protection. FCC

and state legislative action have reduced these barriers to some extent, but the Department

believes that more can be done to ensure that video competition is not unreasonably precluded or

delayed because of local franchising requirements.

A number of other concerns were raised about alleged actions by incumbent providers to

preclude or limit new entry, such as exclusive contracts between cable companies and multitenant building owners and denial of access to “must-have” programming that is owned by

incumbents. Depending on the facts, such conduct can violate antitrust law. However, exclusive

dealing arrangements can also benefit consumers. For example, such an agreement may provide

incentive for the provider to upgrade facilities in a building by ensuring that the costs can be

recouped. Antitrust analysis needs to take into account the potential for both the positive and

negative impacts from an exclusive agreement.

New video entrants have also sought action by the FCC to address these concerns. The

FCC issued orders restricting the use of exclusive contracts between both cable operators and

telephone carriers and building owners and extended the prohibition on exclusive contracts for

programming owned by cable companies. These orders are currently being challenged in

appellate courts. The FCC is also considering whether to eliminate the “terrestrial loophole” in

the program access rules. Whether such regulatory action is warranted depends upon the extent

to which competition exists and whether such conduct is unreasonably and substantially

precluding entry. Regulators also need to consider whether there are procompetitive reasons for

incumbents to engage in such conduct and whether regulation would discourage beneficial

behavior. The Department has in the past and will continue to investigate allegations that such

conduct is anticompetitive and take enforcement action where appropriate.

Concerns were raised relating to whether incumbent telephone providers should be

required to make portions of their networks, particularly last-mile connections, available to

competitors to facilitate additional entry. Wireline providers that combine unbundled local loops

with their own facilities to provide service questioned whether the FCC had failed to evaluate

appropriately the current state of competition in proceedings evaluating the need for making

these facilities available at cost-based prices. These providers argue that requiring these

facilities to be made available encourages entry that would otherwise not occur due to the high

cost of building last-mile facilities. Incumbent providers oppose the continuation of these

regulations because they contend that in many areas there is already robust competition. In

addition, these regulations require incumbent providers to incur expenses and discourage

investment in new facilities. Dr. Hazlett discussed evidence that he contended showed that these

types of regulations caused telephones companies to invest less in their networks than the cable

companies, which did not face such requirements.

Wireless broadband providers consider spectrum critical to their ability to compete. 

Accordingly, during the Symposium various wireless operators and Dr. Hazlett reiterated the

need to make more spectrum available. Some speakers also expressed concern about the
90

perceived failure of the FCC AWS and 700 MHz spectrum auctions to yield much new entry, as

the bulk of spectrum auctioned went to incumbent providers.

C. Proposals for Further Action

C The Department remains committed to enforcing the antitrust laws against conduct that

harms competition in the telecommunications industry. When reviewing conduct raising

competitive concern, the Department will continue to give particular attention to the

effects of convergence and increasing substitution among services. Assessing the legality

of conduct under the antitrust laws requires both an understanding of how customers

view and use services and the impact of consumer behavior on pricing decisions. The

Department recognizes that those assessments can be particularly complex in the

telecommunications industry in view of technology and other changes and will continue

to take them into account in its enforcement decisions.

C To aid its ability to enforce the antitrust laws in the telecommunications industry

efficiently and effectively, the Department will continue to monitor industry trends and

developments. But effective review requires reliable data. Traditionally, regulators have

obtained and reported data about telecommunications providers along the lines of distinct

industry sectors. Consideration should be given to whether this is still an appropriate

framework given the dynamic changes in the industry.

C Increased efforts to obtain relevant data and further refine economic analysis would

advance the Department’s ability to evaluate competitive conditions. Potential subjects

of future study include review of the competitive implications of bundled pricing,

substitution patterns, and quality-adjusted pricing trends.

C In its role as advocate for sound competition policy, the Department will continue to seek

the removal of regulatory barriers that unreasonably impede competition. This advocacy

remains of critical importance given the important role of regulation in shaping

competitive conditions in the telecommunications industry.
A-1

APPENDIX A:

GLOSSARY OF TERMS USED IN THE REPORT

1G: First Generation mobile network; the original

analog mobile wireless technology.

2G: Second Generation mobile network; the second

generation of mobile wireless technology,

introducing digital transmission to carry both

voice and data communications. Standards

include GSM, CDMA, TDMA, GPRS, and

EDGE.

3G: Third Generation mobile network; the latest

generation of mobile wireless technology in use;

extends the capabilities of 2G networks,

providing better quality voice and high-speed

data communications, support for packet

applications, and access to the Internet. 

Standards include UMTS/WCDMA,

CDMA2000, EV-DO, HSPA, and WiMAX.

4G: Fourth Generation mobile network; the next

generation of mobile wireless technology;

expected to support IP end-to-end, and to enable

personalized, high-definition multimedia and

video services.

ADSL: Asymmetric Digital Subscriber Line; the

most commonly used form of DSL services. A

group of DSL technologies that reserves more

bandwidth in one direction than the other,

normally providing higher bandwidth for

download than for upload.

AWS: Advanced Wireless Services. Collectively,

various new fixed and mobile wireless service

applications for which the FCC has been

working to allocate, auction, and license

additional spectrum on a flexible use basis

allowing licensees to offer a variety of wireless

services.

Backhaul: An aggregation of telecommunications

traffic to take it beyond, or bring it to, a point

where it is further processed (such as when

wireless carriers use landline network facilities to

transmit traffic from their cell towers to their

switches.)

BPL: Broadband over Power Line; the provision of

broadband telecommunications services using

electric utility networks to reach consumers’

premises.

Broadband: Any high-speed circuit that can deliver

data significantly faster than a dial-up telephone

line. The FCC has defined high-speed services

based on several speed tiers. The lowest tier

includes any services having speeds of at least

200 kilobits per second (Kbps), which the FCC

now characterizes as “first generation,” but

broadband speeds are often much higher,

frequently several megabits per second (Mbps)

and in many cases in excess of 10 Mbps. The

FCC has established seven higher-speed

broadband classifications: 768 kbps to 1.5 Mbps;

1.5 Mbps to 3.0 Mbps; 3.0 Mbps to 6 Mbps; 6

Mbps to 10 Mbps; 10 Mbps to 25 Mbps; 25

Mbps to 100 Mbps; and 100 Mbps and higher. 

Broadband can be supplied by cable TV

providers offering cable modem service, or BSPs

offering similar services over their fiber-based or

hybrid fiber/coaxial cable networks; ILECs or

CLECs offering DSL or fiber-based service; or a

variety of other ways including wireless

operators offering mobile 3G or fixed Wi-Fi and

WiMAX services, satellites, or BPL.

BSP: Broadband Service Provider; commonly refers

to facilities-based alternatives to the incumbent

telephone and cable companies. These

competitors, also often known as “overbuilders,”

commonly provide service over hybrid

fiber/coaxial cable or fiber-based terrestrial

networks.

BSPA: Broadband Service Providers Association; a

trade association of BSPs.

BSS: Broadcast Satellite Service (or System). BSS

satellites are used to provide DBS multichannel

video programming service to customers.

Bundling: A term used by telephone companies,

cable companies, BSPs, and other

telecommunications service providers to describe

offering several services, such as local and long

distance voice telephony, multichannel video,

and broadband, as one package.

C-band: A portion of the electromagnetic spectrum

used for both terrestrial and satellite-based

telecommunications, in the range of 4-6 GHz. 

Among other things, the C-band is used for

transmission of signals by MVPD satellite

providers, and requires large home “backyard”

satellite dishes, typically six to ten feet in

diameter, to receive signals.

CA2C: Coalition for Competitive Access to Content.

CALEA: Communications Assistance to Law

Enforcement Act, a federal law enacted in 1994

that provides law enforcement agencies with the

ability to wiretap digital networks, and requires

wireline and wireless carriers to enable such

wiretapping equipment.

CATV: Cable Television; a widely used form of

MVPD service operating over local distribution
A-2

networks composed of coaxial cable or hybrid

fiber/coaxial cable. Originally, “community

antenna television,” reflecting the fact that the

original cable systems carried only broadcast

stations received over the air. The term evolved

to its present meaning as cable systems began to

originate their own programming.

CDMA: Code Division Multiple Access; a digital,

spread spectrum, packet-based access technique

widely used in radio frequency systems; a 2G

standard used in certain mobile wireless systems

and some wireless local area networks.

CDMA2000: A 3G evolution of the CDMA standard.

Churn: The level of disconnects from service relative

to total subscriber base of the system over a

period of time, such as a month or year; a metric

used as an indication of how successful service

companies are at retaining customers.

CLEC: Competitive Local Exchange Carrier; a nonincumbent carrier that provides local telephone

services in competition with ILECs in a service

area; includes cable television systems offering

local telephone services.

Circuit Switched: A network that establishes a

circuit on demand and keeps that circuit reserved

for the user until it receives a disconnect signal.

Coaxial Cable: A cable composed of an insulated

central conducting wire surrounded by a

dielectric layer, a radio frequency shield and an

outer layer usually of polyurethane; usually

further wrapped in another insulating layer and

an outer protective layer. A coaxial cable has

capacity to carry great quantities of information,

and is typically used by CATV networks to

carry video, high-speed data, and (in the case of

cable telephony) voice services.

DBS: Direct Broadcast Satellite; a satellite that sends

relatively powerful signals to small (typically 18-

inch diameter) dishes installed at homes to

provide MVPD services.

DMA: Designated Market Area; the 210 geographic

areas established by Nielsen Media Research for

the purpose of rating the viewership of

commercial television stations, and used by the

FCC for identifying television markets.

DOCSIS: Data Over Cable Service Interface

Specification; refers to several versions of

specifications for the relationship between cable

modem customer premises equipment and the

cable modem termination system at the headend

of the cable network, and the specifics by which

two-way data transmission channels operate over

the coaxial cable distribution systems. More

recent levels of specifications such as DOCSIS

2.0 provide for new upstream-intensive

broadband transmissions such as VoIP, peer-topeer networking, video conferencing, web

hosting, video-on-demand, on-line gaming, and

application services. A 3.0 specification is being

developed.

DSL: Digital Subscriber Line; a family of

technologies that provides broadband digital data

transmission over the copper wire loops of a

local telephone network. Download speeds of

consumer DSL services typically range from 256

kbps to 8 Mbps, depending on DSL technology,

line conditions, and service level implemented,

with commonly offered speeds of about 768

kbps; upstream speeds are somewhat lower. See

ADSL.

E911: Enhanced 911 service, a 911 emergency

reporting service with certain advanced features,

including automatic number identification and

automatic location information.

EDGE: Enhanced Data for GSM Evolution; an

upgrade of GPRS, touted as the final stage in the

evolution of wireless data communications with

the existing GSM standards; intended to support

data transmission rates of up to 384 kbps, though

typical speeds are 75 to 135 kbps.

End User: Any individual, association, corporation,

government agency or entity that subscribes to

telecommunications services of a provider and

does not resell them to others.

Ethernet: A local area network standard, known

officially as IEEE 802.3, which operates over

wire and over coaxial cable.

EV-DO: Evolution Data Only (or Data Optimized); a

CDMA2000-based 3G wireless technology that

provides wireless data connections at speeds of

300 to 600 kbps. More advanced versions may

provide speeds of up to 1 Mbps with

considerably higher bursts.

Facilities-Based: A telecommunications carrier that

owns its own facilities (such as switching

equipment and transmission lines) rather than

leasing from others. A carrier can be partially

facilities-based, providing its own switches but

leasing local loops from the incumbent telephone

carrier.

FCC: Federal Communications Commission; the

federal regulatory agency responsible for

telecommunications in the United States.

FDD: Frequency Division Duplexing; a method used

to achieve full duplex communications in

wireless systems, in which the forward and

reverse directions (transmitter and receiver) each

use a different and equally large frequency band

to be able to send and receive transmissions at

the same time, with the sub-bands separated by a

frequency offset. FDD is appropriate for

symmetrical services such as voice and
A-3

bidirectional data transfers and is considered

more efficient for such services than TDD.

FiOS: Verizon’s FTTH network, over which it

provides video, high-speed data, and voice

services.

FSS: Fixed Satellite Service (or System); refers to

telecommunications satellites providing service

between fixed points on the Earth’s surface; does

not include mobile satellite service or BSS. FSS

satellites are typically in GEO orbits.

FTTH: Fiber-to-the-Home; a fiber deployment

architecture in which optical fiber is installed all

the way to the customer’s home (or premises) as

a replacement for the traditional copper

telephone network, which allows delivery of

broadband services at higher speeds than copper

lines or partial fiber networks, making it possible

to provide services requiring high bandwidth

such as movies on demand and online

multimedia presentations without noticeable

delay.

FTTN: Fiber-to-the-Node (or Neighborhood); a

hybrid network architecture involving optical

fiber that terminates in a neighborhood cabinet,

where the signal is converted from optical to

electrical and transmission is completed over a

copper loop.

GAO: Government Accountability Office, a federal

oversight agency in the United States.

GEO: Geostationary (or Geosynchronous) Satellite; a

satellite with a period of revolution of one

sidereal day. A satellite placed in a

geosynchronous orbit (22,300 miles directly over

the equator) will appear to be stationary in the

sky, orbiting synchronously with the earth’s

rotation, which allows for positioning a satellite

receiving/transmitting antenna at a fixed point on

the ground, and pointing it at that satellite’s fixed

location in the sky relative to the earth in order to

receive signals from and transmit signals to the

satellite.

GPRS: General Packet Radio Service; operates by

connecting a GPRS-equipped cell phone into a

laptop with a cable, or inserting a small GPRSequipped PCMIA card into the laptop. The

always-on packet data service for GSM is a

primary feature of what has become known as

2.5G mobile wireless services.

GSM: Global System for Mobile Communication;

the standard digital cellular telephone service

technology found in Europe, Japan, and

Australia. Some years ago most countries

selected a single, standard wireless phone

technology for 2G services, settling on GSM. 

Some U.S. mobile wireless networks also use the

GSM standard, though on a different frequency

than is used internationally.

HD: High Definition; a new television standard

producing a better quality picture and better

quality sound.

HDTV: High Definition Television; its hallmark is

high resolution of display and wide rectangular

screen.

HSD: Home Satellite Dish; the larger “backyard”

satellite dishes, typically three meters in

diameter, used to receive C-band MVPD service.

HSPA: High Speed Packet Access; a packet-based

wireless data service with data transmission,

which includes both HSDPA and HSUPA,

representing an extension of UMTS technology.

HSDPA: High Speed Downlink Packet Access; the

downlink version of HSPA, which is advertised

to provide download speeds from 600 kbps to 1.4

Mbps and can offer peak speeds of 3.6 Mbps for

download. Theoretical downlink performance is

up to 14.4 Mbps.

HSUPA: High Speed Uplink Packet Access; the

uplink version of HSPA, which is advertised to

provides upload speeds from 500-800 kbps and

can offer peak speeds of 1.5 Mbps for upload. 

HSUPA provides theoretical uplink performance

of up to 5.76 Mbps.

IEEE: Institute of Electrical and Electronics

Engineers; a technical professional society and

standards-setting body.

ILEC: Incumbent Local Exchange Carrier; the

established carrier that provides local telephone

services in a service area; defined by Section 251

of the Telecommunications Act of 1996. In most

service areas, the ILEC is one of the RBOCs.

IP: Internet Protocol; part of a family of protocols

describing software that tracks the Internet

address of nodes, routes outgoing messages, and

recognizes incoming messages.

IPTV: Internet Protocol-based Television; a

technique for sending digital TV programs over a

broadband network using IP; requires that

programming be digitized and compressed before

being fragmented into IP packets for

transmission over a broadband network.

IMT-Advanced: International Communications

Advanced; a 4G mobile wireless technology

offering high speeds of up to 100 Mbps.

ITTA: Independent Telephone and

Telecommunications Alliance; an organization

that represents mid-sized local exchange carriers.

ITU: International Telecommunications Union; an

international organization (and United Nations

agency) responsible for, among other things,

worldwide telecommunications standards.
A-4

Last Mile: The portion of a network comprising the

link between an end-user and the serving

telephone company’s central office.

LFA: Local Franchising Authority; a state or local

government body that grants franchises to

companies, allowing them to provide MVPD

services over landline networks within a certain

area defined by the franchise.

LMDS: Local Multipoint Distribution System; a

system for microwave transmission of point-tomultipoint television signals. See MMDS.

LTE: Long-term Evolution Technology; an advanced

wireless technology currently being

standardized, in order to improve the

UMTS/WCDMA mobile phone standard to cope

with future technology evolutions.

MAP: Media Access Project.

MSA: Metropolitan Statistical Area; geographic areas

defined by the U.S. Census Bureau that contain

cities with populations of 50,000 or more, and

which also include the surrounding counties.

MSO: Multiple System Operator; a company that

operates more than one cable TV system, either

in different places or clustered in the same area.

MMDS: Multichannel Multipoint Distribution

System; a way of distributing cable television

signals via microwave from a single transmission

point to multiple receiving points. The MMDS

band uses microwave frequencies from 2 to 3

GHz in range. Reception of MMDS-delivered

television signals requires a special rooftop

microwave antenna and a set-top box for the

television receiving the signals.

MVPD: Multichannel Video Programming

Distribution. A MVPD provider delivers

multiple channels of video programming

services, usually for a subscription fee. These

operators include CATV systems, DBS

providers, and wireline video providers such as

telephone companies and BSPs.

MDU: Multiple Dwelling Units; any housing

structure divided into multiple living areas to

accommodate multiple “family” units (such as

apartment buildings, condominiums, and

duplexes).

MTU: Multiple Tenant Units; a building (or group of

buildings) that houses many tenants, including

businesses and residences (such as an office

building, office park or corporate campus,

medical facility, hotel, or college dormitory).

NAA: National Apartment Association.

Naked DSL: DSL service that is offered without any

obligation to have another service from the same

or an affiliated provider (such a voice telephone

service). This allows the customer to use a

nomadic VoIP service.

Narrowband: Refers to Internet access services

operating at lower speeds of up to 56/64 kbps,

typically on a dial-up basis over telephone lines. 

The FCC considers services to be below highspeed (narrowband) if their transmission speeds

are less than 200 kbps in both directions.

NCTA: National Cable and Telecommunications

Association; a trade association of CATV

providers.

NMHC: National Multi-Housing Council.

Nomadic VoIP: VoIP service offered by a provider

independently of a broadband network, requiring

the customer to have access to another provider’s

broadband service; also known as “over-the-top”

VoIP.

NPRM: Notice of Proposed Rule Making; a FCC

term referring to an announcement of proposed

regulatory actions made available for public

comment.

NTCA: National Telecommunications Cooperative

Association; a non-profit association

representing small and rural telephone

cooperatives and commercial companies.

OPASTCO: Organization for the Promotion and

Advancement of Small Telecommunications

Companies.

Passive Optical Network: A fiber optical network

without active electronics (such as repeaters)

relying on passive optical splitters to deliver

signals to multiple terminal devices. Use of this

technology allows a network to be built without

incurring the substantial costs for active

electronics found in other types of

telecommunications networks.

PEG Channels: Public, Education, and Government;

denotes local public access TV channels.

Price Averaging: A form of implicit subsidy in

which a company, often pursuant to regulatory

requirements, charges the same prices to

customers located in different geographic areas,

even though differing costs or other efficiencies

would support charging different prices to these

sets of customers.

RBOC: Regional Bell Operating Company; the

largest ILECs. Seven RBOCs were created

pursuant to the Modified Final Judgement in U.S.

v. AT&T, though currently only three remain

(AT&T, Verizon, and Qwest).

PPA: Preferred Provider Agreement; an agreement

governing access by a specific provider to a

development, often excluding or disadvantaging

other providers.

RSN: Regional Sports Network; a network that

presents sports programming to a local market

via cable television, consisting primarily of live
A-5

broadcasts of local professional and college

sporting events.

SAE: System Architecture Evolution; the core

network architecture of the future LTE wireless

communications standard and the evolution of

the GPRS core network (with some differences). 

The main component of SAE is the evolved

packet core which will serve as the equivalent of

GPRS networks.

SDSL: Symmetrical Digital Subscriber Line; a type

of DSL technology that, in contrast to the more

commonly used ADSL, provides the same

amount of bandwidth in both directions for

download and upload.

STB: Set Top Box; the electronic box which sits on

top of or adjacent to a TV, decoding incoming

signals for cable or DBS channels so that they

can be watched by subscribers.

SMATV: Satellite Master Antenna Television (also

known as “private cable”); a MVPD distribution

system that receives video programming via a

rooftop satellite dish and distributes satellite TV

signals by wires through one or a limited number

of buildings (such as hotels and apartments).

Smart Grid Technology: A technology that allows

two-way communications and control of

equipment on the electrical grid; can support

BPL services.

Special Access: The provision of non-switched local

leased circuits dedicated to the use of a particular

customer. These local services are commonly

provided by the ILECs to wireless carriers, long

distance carriers, CLECs, broadband providers,

and others.

TDD: Time Division Duplexing; a method used in

cellular and PCS networks employing TDMA, as

well as certain modes or interfaces for other

standards and some other types of networks. 

Each radio channel is divided into multiple time

slots through TDMA, thereby supporting

multiple conversations.

TDMA: Time Division Multiple Access; a

technology used to separate multiple wireless

conversation transmissions over a finite

frequency allocation of bandwidth, with each

caller assigned a specific timeslot for

transmission.

Telco: A local telephone company.

TELRIC: Total Element Long Run Incremental

Cost; a cost measure adopted by the FCC to

implement the requirement of the

Telecommunications Act of 1996 that ILECs

make UNEs available to CLECs at cost-based

rates.

TPUC: The Public Utility Commission of Texas; a

state telecommunications regulatory agency.

Third Pipe: A network providing residential users an

alternative to incumbent telephone and cable

networks for obtaining telecommunications

services. Potential providers may include BSPs,

wireless, satellite, or BPL.

TIA: Telecommunications Industry Association; a

trade association that represents

telecommunications equipment companies and is

involved in standards development.

Triple Play: Refers to the delivery of voice,

broadband Internet access, and video as a

bundled package, usually over a single

broadband network. With wireless mobile

services added, this becomes a “quadruple play.”

UMTS: Universal Mobile Telecommunications

System; one of the 3G wireless standards, based

on GSM. Once fully implemented, UMTS will

allow mobile voice and data users to maintain

constant connectivity to the Internet, regardless

of where they travel. See WCDMA.

UNE: Unbundled Network Element; physical and

functional elements of the network (such as local

loops, switch ports, and dedicated and common

transport facilities). The Telecommunications

Act of 1996 requires ILECs, to the extent

determined by the FCC, to unbundle their

network elements (such as loops, switches, and

transport) for provision on a wholesale basis to

CLECs. Use of UNEs allows a CLEC to provide

service without having to duplicate that portion

of the ILEC’s network.

UNE-L: Unbundled Network Element-Loop. The

provision of an unbundled local loop on a standalone basis by the ILEC, commonly used by

partially facilities-based CLECs that own their

own local switches.

UNE-P: Unbundled Network Element-Platform; a

combination of UNEs that enables a CLEC to

provide an end-to-end local circuit without some

part of the facilities being supplied by the CLEC. 

In 2005 the FCC stopped requiring ILECs to

provide the full UNE-P combination.

USIIA: US Internet Industry Association; an Internetrelated trade association.

USF: Universal Service Fund; a cost allocation

mechanism designed to keep local exchange

rates at reasonable levels, especially in “high

cost” (usually rural) areas. Originally intended

to provide a basic telephone service access line

to every U.S. household at a reasonable cost.

U-Verse: AT&T’s FTTN network, used to provide

video, high-speed broadband service, and voice

telephony.
A-6

U-Verse TV: AT&T’s video service provided over

the U-Verse network.

VDSL: Very-high-data-rate Digital Subscriber Line;

a high-speed form of ADSL that delivers 13 to

52 Mbps downstream bandwidth and 1.5 to 2.3

Mbps upstream.

VOD: Video-on-Demand; a service that allows the

subscriber to choose from among a variety of

video programs at any time, with the ability to

control play functions such as pause, resume, and

forward, similar to a VCR or DVD player.

VoIP: Voice over Internet Protocol; a means of

providing voice telephony over a broadband

network (such as the Internet, a corporate

Intranet, or a managed network) using “Internet

Protocol,” a catchall term for the protocol and

technology of encoding a voice call so it can be

slotted as data packets on a data network. VoIP

makes it unnecessary to employ more expensive

circuit switching to provide telephony.

WCDMA: Wideband CDMA; a high-speed 3G

mobile wireless technology officially known as

UMTS, which digitizes and transmits the input

signals in a coded, spread spectrum mode over a

range of frequencies; supports images,

mobile/portable voice, data, and video

communications up to 2 Mbps for local area

access or 384 kbps for wide area access.

Wi-Fi: Wireless Fidelity (also known as IEEE 802.11

standard); a wireless technology that runs in the

2.4 GHz range at speeds of up to 11 Mpbs and

provides service over a limited geographic

radius, typically in the range of 150 to 220 feet. 

Known as “Municipal Wi-Fi” when offered by

municipalities.

WiMAX: Worldwide Interoperability for Microwave

Access (also known as IEEE 802.16 standard); a

non-line-of-sight wireless technology that for

fixed applications can carry data at a potential

speed of up to 70 Mbps in a radius of up to 31

miles, greatly extending the range of normal WiFi. Mobile applications are currently being

deployed up to 15 Mbps of capacity within a

typical cell radius deployment of two miles.
B-1

APPENDIX B:

SYMPOSIUM PARTICIPANTS

Panel I: Entry into Multichannel Video

Services

Moderator: Yvette Tarlov, Attorney, Antitrust

Division, U.S. Department of Justice

John Thorne, Deputy General Counsel and

Senior Vice President, Verizon

Communications Inc.

John Goodman, Executive Director, Broadband

Service Providers Association

Grier Raclin, Executive Vice President and

General Counsel, Charter Communications,

Inc.

Jane Lawton, Administrator, Office of Cable and

Communications Service, Montgomery

County, Maryland, and Delegate, Maryland

General Assembly

Hal J. Singer, President, Criterion Economics

Panel II: Entry into Telephone Services

Moderators: Carl Willner, Attorney, Antitrust

Division, U.S. Department of Justice

Luin Fitch, Attorney, Antitrust Division, U.S.

Department of Justice

Sean C. Lindsay, Associate General Counsel,

Qwest Communications International Inc.

Alexandra “Sandy” Wilson, Vice President,

Public Policy and Regulatory Affairs, Cox

Enterprises, Inc.

Stephen Perkins, General Counsel, Cavalier

Telephone LLC

Jill Canfield, Senior Regulatory Counsel,

National Telecommunications Cooperative

Association

Simon J. Wilkie, Executive Director, Center for

Communications Law and Policy,

University of Southern California, Gould

School of Law

Panel III: Wireless Broadband Technologies

Moderator: Hillary Burchuk, Attorney, U.S.

Department of Justice

Thomas W. Hazlett, Professor of Law and

Economics, George Mason University

School of Law

Hank Kafka, Vice President, Network

Architecture, AT&T Inc.

Bin Shen, Vice President, Broadband Product

Management, Sprint Nextel Corporation

R. Gerard Salemme, Executive Vice President of

Strategy, Policy and External Affairs,

Clearwire Corporation

William F. Wallace, Chairman, DigitalBridge

Communications Corporation

Panel IV: Other Alternative Broadband

Technologies Including Satellite and

Broadband over Power Line

Moderator: Nancy Goodman, Chief,

Telecommunications and Media Section,

Antitrust Division, U.S. Department of

Justice

Evan R. Grayer, Vice President Broadband,

DirecTV Group

David Brown, Vice President and General

Counsel, WildBlue Communications, Inc.

Brendan Herron, Vice President, Corporate

Development and Strategy, Current Group,

LLC

Blair Levin, Managing Director, Stifel Nicolaus
C-1

APPENDIX C:

WRITTEN SUBMISSIONS

In addition to the written materials provided by Symposium participants, the following

entities submitted comments or other documents to the Department in connection with the

Symposium:

C Accipiter Communications, Inc., dba Zona Communications

C The Brookings Institution

C Covad Communications, NuVox Communications, and XO

Communications (collectively)

C The Department of Cable Communications and Consumer

Protection of Fairfax County, Virginia

C Frontline Wireless, LLC

C T-Mobile USA, Inc.

C US Internet Industry Association
1

 Henry J. Kafka, AT&T, “Voice, Video and Broadband: The Changing Competitive Landscape and Its

Impact on Consumers,” 2007 DOJ Telecommunications Symposium, Nov. 29, 2007, at 1 (“AT&T Submission”).

2

 For a more detailed description of the evolution of GSM and follow-on standards, the technologies used

by AT&T, see AT&T Submission, at 2-5.

3 See, e.g., AT&T Submission, at 3-5 (GPRS offering about 35 kbps and HSPA offering peak rates of 5 to

14 Mbps).

4

 Kafka, Tr. at 186-87; AT&T Submission, at 4; see also Hank Kafka, AT&T Inc., “Wireless Broadband,”

2007 DOJ Telecommunications Symposium, Nov. 29, 2007, at 2 (“Kafka Presentation”) (chart shows evolution of

wireless echnologies from 1G to enhanced 3G (“E3G”)).

5

 Kafka Presentation, at 3 (chart shows increasing download and upload throughput for GPRS, EDGE,

WCDMA/UMTS, and HSDPA).

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APPENDIX D:

THE EVOLUTION OF WIRELESS TECHNOLOGY

Wireless broadband services have been characterized by “[s]wift technological evolution

and persistent innovation.”1

 Consumers have benefitted in terms of improved quality and the

addition of new features and options. Today most wireless broadband services are delivered via

cellular technologies adopted by companies that initially built analog voice systems and have

migrated to digital and upgraded their networks to provide a variety of data services. A much

smaller but growing segment uses fixed wireless technologies, including Wireless Fidelity (“WiFi”) and Worldwide Interoperability for Microwave Access (“WiMAX”) technology. WiMAX

is being extended to provide fully mobile broadband communications.

A. Cellular Families: CDMA and GSM

Two cellular technology families, Code Division Multiple Access (“CDMA”) and Global

System for Mobile Communication (“GSM”),2 are now in widespread use in the United States. 

Both initially offered only voice services. Over time standards and equipment were developed

for each technology enabling providers to offer data services, initially at or below the speeds

offered by dial-up Internet access services and evolving to speeds similar to some wireline

broadband offerings.3 In GSM, Wideband CDMA (“WCDMA”), also known as Universal

Mobile Telecommunications System (“UMTS”), evolved to High Speed Packet Access

(“HSPA”) capability, while in CDMA, CDMA 2000 evolved to Evolution Data Only (“EVDO”). These third-generation (“3G”) technologies are continuing to evolve and offer

significantly greater speeds.4

To illustrate how evolving technology has increased wireless data speeds, Hank Kafka,

of AT&T, provided a review of the history of downlink and uplink speeds in the GSM

technology family.5 In the early phase of Second Generation (“2G”), General Packet Radio

Service (“GPRS”) technology provided speeds comparable to a dial-up modem. The next

iteration was Enhanced Data for GSM Evolution (“EDGE”) technology which was introduced to

GSM networks beginning in 2003. EDGE, with typical speeds of 75 to 135 kbps, made
6 AT&T Submission, at 3.

7

 Kafka, Tr. at 193; see also Kafka Presentation, at 3 (showing even higher speeds for HSDPA and

HSUPA). At present, AT&T has deployed HSDPA in over 270 markets and plans to extend coverage to nearly 350

leading U.S. markets by the end of 2008. See AT&T Web site, www.att.com/gen/general?pid=7493. Verizon has

deployed EV-DO Rev. A in over 240 metropolitan areas and advertises typical download speeds of 600 kbps to 1.4

Mbps and typical upload speeds of 500 to 800 kbps. See Verizon web site,

http://b2b.vzw.com/broadband/RevA.html.

8

 Kafka, Tr. at 193-94.

9

 Kafka, Tr. at 195-96; Kafka Presentation, at 4 (chart shows HSPA/LTE peak throughput evolution).

10 Kafka, Tr. at 187. Extensive LTE deployment is not not expected until 2012. Ericsson Expects Mass

LTE Deployment in 2012, Feb. 19, 2008, available at http://www.gigaom.com/2008/02/19/ericsson-expects-masslte-deployment-in-2012.

11 AT&T Submission, at 5.

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advanced mobile services such as low resolution video, higher-speed color Internet access, and

e-mail possible.6 EDGE evolved to WCDMA/UMTS, which provided download and upload

throughput at about 220 to 320 kbps. UMTS was then extended to HSPA and its two facets –

High-Speed Downlink Packet Access (“HSDPA”) with typical download speeds of 600 kbps to

1.4 Mbps and High Speed Uplink Packet Access (“HSUPA”) with typical upload speeds of 500

to 800 kbps.7 In Kafka’s view devices that are being deployed now at these speeds have true

broadband capability.8

 In the future, according to Kafka, there will be multiple new HSPA

releases that will extend peak speeds; however, these releases are not yet operable and typical

field speeds cannot be measured. Typical user speeds will be lower than peak speeds because of

the real world constraining effects of distance from the cell site, interference, and noise. At the

time of the Symposium peak speeds were 3.6 Mbps downstream and 1.5 Mbps upstream for

HSPA. In the next few years, this will expand to 14 Mbps downstream, using existing standards. 

With new standards extensions, peak speeds will reach 41 Mbps downstream.9

Moving beyond HSPA, Kafka said there is intensive work ongoing in standards

organizations to define Long-Term Evolution (“LTE”) technology. The LTE standard should be

completed by the end of 2008, and manufacturers will be introducing LTE equipment in late

2009 or early 2010.10 Both a new radio interfaces and a related network architecture called

System Architecture Evolution (“SAE”) are being developed. The LTE development goals

include: (1) evolution towards a pure packet-only system; (2) higher data rates (target peak rates

of 100 Mbps downlink and 50 Mbps uplink); (3) higher spectral efficiencies and flexible channel

bandwidths; (4) higher quality-of-service, always-on experience, and lower latency; and (5) a

simpler and more efficient network architecture.11 Verizon has also announced that the company

will use LTE for its advanced mobile wireless network.

B. Wi-Fi and WiMAX

Wi-Fi operates pursuant to FCC rules permitting unlicensed use of certain spectrum and

is based on Institute of Electrical and Electronics Engineers (“IEEE”) 802.11 standards. It is

deployed in residences, in businesses, and in large and small venue “hotspots.” It allows users
12 FCC Eleventh CMRS Report, 21 FCC Rcd at 11028-29.

13 NTIA Broadband Report, at 20 (citing JiWire Wi-Fi HotStats).

14 AT&T Submission, at 6-7.

15 WiMAX Forum website, http://www.wimaxforum.org/technology.

16 AT&T Submission, at 6-7.

17 Kafka, Tr. at 189-90. Clearwire and Sprint Nextel have announced plans to deploy Wi-MAX to 120-140

million people by 2010. See supra Chapters II.C and III.C.

18 ITU web site, http://www.itu.int/newsroom/media-kit/ITU-R/story3.html.

19 Kafka, Tr. at 192-93.

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who are located short distances (150-250 feet) from an access point to obtain high-speed wireless

Internet connections.12 The number of hot spots in the United States has grown substantially. 

According to one report, there were 66,000 hot spots in the United States as of December 21,

2007.13 Municipalities are also using Wi-Fi technologies to deliver broadband Internet access to

their citizens.

Fixed Wireless evolved to a mobile technology with the IEEE’s adoption of the 802.16(e)

standard, referred to as “WiMAX.” WiMAX is being deployed on licensed spectrum. The

WiMAX Forum, a consortium of wireless industry participants formed to promote 802.16(e),

designed interoperability protocols so that the technology could be deployed on a significant

scale. WiMAX is suitable for a wide range of applications including providing high-speed data

service, Internet connectivity, and mobile connectivity.14 Typical mobile deployments are

expected to have capacities of up to 15 Mbps per cell within a radius of up to three kilometers,

while typical systems for fixed/portable access are expected to have capacities of up to 40 Mbps

per channel.15

WiMAX was recently accepted as a 3G technology by the International

Telecommunications Union (“ITU”) although additional work must be done to establish a fully

interoperable multivendor WiMAX ecosystem.16 As with other 3G technologies, WiMAX is

continuing to evolve. New releases are planned and there are active standards meetings to

further define and increase its capabilities. Work has also begun on setting standards for the next

version of WiMAX: 802.16m, which is going to significantly increase the speeds and

capabilities of WiMAX. Similar to LTE, WiMAX has its own time line for technological

developments and improvements.17

C. Beyond WiMAX-LTE

The ITU is defining 4G technologies called IMT-Advanced. IMT-Advanced systems,

which could be commercially available by 2011, are expected to deliver speeds of 100 Mbps for

high mobility applications.18 Kafka of AT&T believes the development of 4G technologies will

continue the swift evolution and progress of wireless broadband services.19