ACTION ALERT (Donald Vial, Chair, APT Policy Committee)

The FCC has followed APT's recommendation to issue a notice of proposed rule making (NPRM) together with a legally required order initiating an investigation (OII) to implement Section 706 of the 1996 Telecommunications and to determine if the "ubiquity" objective of "deploying advanced telecommunications capability to all Americans..." is being met.

The good news is that the NPRM would break a serious logjam that has stymied investments in high capacity bandwidth so essential to delivering the advanced communications and information services of the digital age. The FCC needs to be commended for this. But there is a downside that goes with the good news that must be confronted head on. The Commission's framework for breaking the log jam, unfortunately, presents major problems for community-based organizations--particularly community technology applications centers and organizations representing impoverish people--which have as their central purpose the diffusion of the advanced technologies to address the life needs of urban communities and rural area "marginalized" by the operation of competitive market forces. The NPRM proposes a competitive framework for deploying advanced network capability that is both legally questionable and excessively and unnecessarily tilted to the high-margin, high-end of the market, seriously exacerbating marketplace problems of reaching marginalized communities at risk of being by-passed by competitive forces. Unless that FCC (and their state counter parts) can be convinced to advance pro-active policies to bridge the widening digital divide, the so-called electronic superhighway is destined to remain a dirt path to marginalized communities, leaving millions in the dust of the digital age

URGENT ACTION REQUIRED

As indicated more specifically below, action is need now to urge the FCC, and friendly Congressmen to press the FCC, to support pro-active policies advocated by APT--policies that are specifically designed to expand the reach of competitive market forces to effectively serve the communications and information needs of "marginalized" communities, both urban and rural. As outlined in APT's 706 filing with the FCC earlier this year, the central purpose of the Alliance's pro-active policies is to develop a resource base for supporting community-based vehicles and mechanisms which would make it feasible for competitive providers to both (a) access the innovative capacity of marginalized communities and (b) to develop and deploy community-based applications of the advanced technologies applications which have the proven capability of enhancing the conditions of life and labor of people working and living in them.

In this connection, in a recent speech to the Urban League, FCC Chairman Kennard has indicated that he intends to take the Commission to rural and urban areas across the country to determine how competitive providers of communications and information services are meeting the "ubiquity" commitment of Section 706 in the deployment of high capacity infrastructure. Community-based organizations, which are actively pursuing the equity objectives of this key policy in Section of the 1996 Act, should commend the Chairman. Most importantly, he needs to be actively supported and encouraged to visit communities, urban and rural, where the digital divide prevails, and where it is getting wider as the Commission gives highest priority to establishing a level playing field for competitors and only short-shrift to how competition is actually playing out for major sectors of the society.

BACKGROUND AND SUPPORTING INFORMATION

APT's basic position on implementation of Section 706

APT has taken the lead nationally in pressing the FCC to implement Section 706, which we urged to be included in the 1996 Act. Early on, as the Act was being implemented, we urged the Commission to integrate the commitment to "ubiquity" in the Section with all of its major orders affecting universal service commitments, interconnections of competitors with dominant, incumbent local exchange carriers (ILECS), and related fees for accessing local exchanges. In the spring of 1998, we specifically addressed the consequences of the Commission having failed to address Section 706's implementation in each of those proceedings. Given the legal requirement that the Commission issue an order instituting an investigation (OII) by August 6, 1998, to determine how the implementation was going forward, APT filed a lengthy petition urging the Commission to take specific action (a) to remove barriers to facilities-based competition and advanced infrastructure deployment that it had erected in its network "unbundling/wholesale resale" approach to promoting competition in ILEC-dominated local exchange markets, and (b) to combine the removal of barriers to investments with specific pro-active polices which are essential to overcoming the limitations of market forces in reaching out to the full spectrum of society in deploying advanced telecommunications capability. Because time was running, we urged the Commission to start an NPRM proceeding in addition to the OII

Regarding removal of barriers to advanced infrastructure deployment, a key APT recommendation was for the Commission to distinguish network services which deploy high-capacity bandwidth from the traditional low-capacity services which are required, under Section 251 (c), to be unbundled for competitive wholesale/ resale of local exchange services--the local loop, linking homes and business to central offices. In the context of competing technologies for advanced data networks linked to the Internet, the application of the unbundling wholesale/resale platform to the deployment of high capacity bandwidth was a clear disincentive to investments in advanced infrastructure by the ILECs--a disincentive that the Commission now seeks to address in its recently-issued NPRM. Based on the legal viewpoint that the Commission clearly has the authority to separate advanced network services from regular network services in applying the requirements of Section 251(c), we recognized the practical necessity of supporting a requirement that ILECs form independent subsidiaries for competitively investing in high capacity bandwidth services, conditioned further by requirements that would prevent them from buttressing their dominant role in local exchange markets.

On the pro-active side of nurturing aggregated demand in marginalized communities, APT recognized that simply removing barriers to infrastructure investments could not overcome serious market shortcoming in addressing the needs of low-income people and small businesses in marginalized communities. We advanced three collateral policy suggestions to confront potential market failures head on: One was to urge the Commission to condition the approval of mergers and acquisitions with social compacts for the merged/acquired companies to pursue investment policies that are compatible with the infrastructural "ubiquity" objectives of Section 706. Another proactive recommendation, in the same "social compact" vein, was to give the ILEC's some relief from the imputed "productivity offset" in the setting of rates and access fees under price cap regulation, suggesting a federal-state coordinated approach. We urged that the relief be monitored for the targeting of the resulting saving of the companies to investments that bring high capacity bandwidth and advanced services to marginalized communities. A third, and most extensive recommendation, dealt with community-driven demand aggregation that would draw competitive infrastructure investments into the communities at risk of being given short shrift by traditional market forces. Specifically, reaching beyond all other Section 706 FCC filings, APT has called for establishing "a federal/ state policy framework to encourage, facilitate, and support community/provider partnerships and related market-oriented processes which are designed to (a) aggregate effective demand for community-based applications of advanced communications and information technologies and (b) build a strong 'demand-pull' base for advanced infrastructure investments to the home". Because states are closest to communities where market forces are actually playing out, we urged the FCC to create a federal/state "joint board" to develop options and a resource base for implementing the recommendation along the lines suggested in APT's filing.

APT believes strongly that these proactive policies are crucial to the work of community-based organization, which is also the primary membership base of APT. Underlying our advocacy is recognition that the convergent communications and information technologies of the digital age are shaping the future of community life. As market forces are unleashed to develop and deploy them, however, there is growing concern from the President on down that the marketplace is actually laying an advanced infrastructure base for another round of economic and social polarization of the society.

As we point out in our Section 706 filing, the reason for this is clear enough. Competitive providers in the converged communications industry lack sustainable marketing vehicles or processes for accessing the innovative capacity of community-based organizations, small business groups and residents of marginalized communities. There are no viable, on-going relationships with competitive providers for addressing the pent-up desire in these communities to become effective participants in the development and marketing of technology applications, which are specifically targeted to advance their economic and social status in life.

While recognizing that there are a number of tested options for market-oriented, community-driven demand aggregation that may be appropriate for policy implementation embracing devolution, APT has advanced a generic option built on a CBO/community-based model for participatory action research. The emphasis is on action--bringing community leaders (who function as the "interface" for community aspirations) into market-oriented relationships with competitive providers and product development/marketers in the converged communications industry. The strategy is to open up viable options for determining how community-driven applications development and deployment can generate effective demand among low-income populations, provide an expanded community base for demand aggregation and market-building, and bring marginalized communities more fully into the operation of the marketplace. (These proactive policy recommendations in our 706 filing may be accessed through APT's web site

FCC's positive response and its limitations

The FCC's issuance of a NPRM itself is a significant and positive response to APT's plea to accelerate removal of barriers and disincentives to ILEC investments in high capacity network services. The "devil is in the detail" of how this was done, however, and APT's pro-active recommendations failed to get on the radar screen of the NPRM. Instead, our pro-active policy proposals have merely been identified for comment in the Commission's OII to review the progress or lack of progress in implementing Section 706. We believe that they should be an integral part of both the NPRM and OII.

Regarding the NPRM's approach to removing the regulatory drag on high capacity infrastructure investments, APT is filing a response to the legally questionable and potentially perverse manner in which the Commission arrived at the subsidiary requirement for the RBOC's to be able to provide competitive, high capacity bandwidth services without being bound to the unbundling/wholesale resale platform erected by the FCC to comply with Section 501 (c). In a nutshell, the NRPM, contrary to our APT legal views and recommendations, finds that the Act prohibits the Commission from making a distinction between advanced network and regular network services in the application of the unbundling/wholesale resale platform of the Commission. An ILEC that rolls out ADSL as a new service, for example, must make that service available to competitors for resale at cost (TELRIC forward-looking prices) or discounted wholesale resale rates as currently required by the FCC. To permit escape from this restriction, a novel legal theory is advanced. The RBOCs are permitted to create (in a manner carefully circumscribed by the NPRM) an independent subsidiary (thus an affiliate of the ILEC subsidiary of the RBOC) to offer the advanced services, not as a dominant ILEC, but as a non-dominant competitive carrier. The affiliate would operate like a competitive local exchange carrier (CLEC) offering high capacity bandwidth services. It would get no more from or no less from the dominant ILEC than what the competitive CLEC gets, and at the same prices. That includes the leasing of the local loop, co-location of equipment in the ILEC central office, etc. In this manner, the affiliate--no longer being a being a local exchange carrier under 251(c)--escapes the unbundling/wholesale resale platform, which continues to apply to the ILEC.

The framework has all the elements of fairness to ILECs and CLECs alike. In reality, the legal theory advanced by the FCC permits an independent subsidiary to be created, offering competitive high capacity services, that functions in relation to the ILEC the same as the CLEC. This is the desired end, but creating a subsidiary in the image of a CLEC amounts to an economic mandate for the new affiliate of the ILEC to behave exactly like the CLECs which, in the main, are focused on the high end of the market. If the subsidiary wants to survive in the evolving, fiercely competitive market for deploying high capacity bandwidth (regardless of technology) it will be forced to concentrate on the high end of the market as well. In short, the ILEC will not be able to use the economies of scale and scope that would have helped them serve the broader base of consumers.

The response filing of APT will point out that the Commission has "boxed itself in" with its legal theory. It must adhere to the separate subsidiary approach, which it advances, no matter what the record shows, because that is its only basis for not applying Section 251 (c). Based on our prior filings, APT is advancing recommendations, requiring the establishment of a subsidiary, that mitigates the negative impact of the Commission's legal theory so that pro-active policies designed to reach marginalized communities have less of a hurdle to overcome.

In our response filing we will also point out that the NPRM raises serious questions about the broader impact of subsidiaries on the "ubiquity" objectives of infrastructure deployment when they become vehicles for accommodating a competitive "level playing field" that is focused on high margin customers. In this respect, will point out in our response filing that the use of subsidiaries does not serve the public interest well, either in marginalized urban communities or sparsely populated rural areas. APT's support of a more appropriate way of requiring subsidiaries as the vehicle of RBOCs for marketing high capacity bandwidth in a fully competitive environment recognizes an often-implicit downside in the use of subsidiaries. Thus we couple our support of a subsidiary mechanism with emphasis on APT's pro-active recommendations to overcome the tilt of the competitive marketplace toward the high-end of the market and to focus public policy more effectively on community-driven applications development and demand aggregation to drive infrastructure investments.

We will be urging in our response filing that APT's pro-active recommendations need to be addressed in the NPRM itself, and that they be recognized in the NPRM for refinement in the OII. It is critically important to remind the Commission that the economies of scale and scope that attach to convergent network technologies must reach the full spectrum of society. The purpose of using a subsidiary approach to a level playing field is to advance competition as a means to an end. It is not to restrict competitive services to high margin customers. Thus, we will argue that experience with subsidiaries must be followed closely. and evidence that they are functioning to restrict services to high end subscribers should signal consideration of ending their use, especially for serving residential consumers.

A central point in APT's response filing to both the NPRM and the OII is that the downside of using subsidiaries as a tool to advance competition heightens the necessity of responding to our pro-active policy recommendations outlined above. Removing barriers and disincentives to facilities-based infrastructure investments must be coupled with policies to make the marketplace work for everyone. That is the heart of the Section 706 mandate of the Congress.

SUMMING UP

1. The FCC is to be commended for initiating a NPRM to break the regulatory logjam that has held back investments in high capacity bandwidth required to market the products and service of the digital age. The Commission is to be commended also for recognizing at last that the pro-active recommendations of APT to bring advanced communications and information services with reach of everyone, particularly marginalized communities, need to be at least addressed in the Commission's OII.

2. Community-based support is urgent for APT recommendations to correct the legally questionable and potentially perverse manner in which the Commission has arrived at the subsidiary requirement to be imposed on RBOCs for marketing competitive, high capacity services. Such support is particularly important to mitigate the tilt of the proposed competitive framework toward the high end of the market rather than in the direction of the low-end tilt of the infrastructure "ubiquity" commitment in Section 706

3. Specifically, APT policy support should demand that mitigating the downside impact of the Commission's approach to creating a competitive environment for deploying high capacity infrastructure be coupled with the pro-active recommendations of APT to breathe life in the policy commitment of Section 706--the ubiquity commitment to "deploy advanced telecommunications capability to all Americans"

4. It is important also that the Commission be pressed to recognize that the need for 'coupling", as in (3) above, be specifically addressed in the NPRM and that the substance of APT's pro-active recommendations be refined in the Commission's OII;

5. Aggressive encouragement and support is necessary for Chairman Kennard's commitment to take the Commission to urban and rural areas across the nation to determine how the mandate of Section 706 is being carried out by competitive providers-- and, in the process, find out from community-based organization what the digital divide is all about;

Members and other community-based supporters of the central thrust of APT policies will be invited to sign on to the response filings currently under preparation. Suggestion for separate response filings in keeping with this alert will also be forthcoming.