The Status of Local Competition
and the Provision of Advanced Telecommunications Services

MFS III Technical Conference
March 30, 1998

Submitted by
Eugene Hastings, Technical Director
Ashley C. Schannauer
Attorney and Telecommunications Policy Analyst

Information Renaissance
600 Grant Street, Suite 2980
Pittsburgh, PA 15219
412.471.1592 (FAX)

1. Introduction

Thank you for the opportunity to present this testimony on the status of competition among local exchange carriers. As you know, competition is not an end in itself. Competition is important because of the benefits it can generate. Competition can lead to the rapid deployment of telecommunications services, and the prices of the services are expected to be driven to reasonable levels.

Our testimony will discuss the public’s needs for the broad-based availability of advanced telecommunications services and the benefits that such services can provide. By advanced telecommunications services, we mean services which provide the public with broadband access to information and data services. The Internet is a prime exemplar, but advanced services can also include private network services and the two-way transmission of still and moving images in the support of business, education and health care. We believe this terminology to be consistent with the intent and language of the Telecommunications Act of 1996. We will discuss the efforts of our organization to obtain the services from Bell Atlantic and others and the lack of local competition that currently exists in the provision of these services We will then discuss how the lack of competition has slowed or prevented widespread deployment of advanced services.

Finally, we recommend that the Commission seek new ways, beyond the current debate on local interconnection, to promote local competition and the rapid deployment of advanced telecommunications services.

2. Background on Information Renaissance

Our recommendations today are the outgrowth of our activities as an organization. Accordingly, before outlining our suggestions, we should provide some background on our organization’s activities.

Information Renaissance was formed as a not-for-profit corporation in January, 1996, to promote the development of network infrastructure in support of education, community development and economic revitalization. We help schools, community groups, businesses and home users gain access to advanced telecommunications technologies, including networking and Internet access. We also promote regulatory policies to facilitate those goals. We have three categories of programs – programs that provide access through community networks, programs that advocate regulatory policies to improve access and programs that encourage the development of online resources.

a. Access through community networks

Information Renaissance was formed as an outgrowth of Common Knowledge: Pittsburgh, a pioneering school networking effort in the Pittsburgh Public Schools, funded by the National Science Foundation. Common Knowledge explored methods to establish a metropolitan area network among the Pittsburgh Public Schools, to connect these schools to the Internet and to make use of networking technology in the classroom. Subsequently, in Bridging the Urban Landscape, a program funded by the Department of Commerce’s Telecommunications and Information Infrastructure Assistance Program, we helped extend this access to community groups. The Bridging the Urban Landscape program involved community access sites, online resources for educational use and research into connectivity options.

The current work of Information Renaissance extends Internet connectivity to residential areas. We help community groups establish computer labs and access points where the public can use computer technology and the Internet. We also work with the Housing Authority of the City of Pittsburgh to establish community-based networking facilities for public housing residents. We currently provide connectivity, training and support to 28 community groups. A current list of community computer labs is included with this testimony as Attachment No. 1.

These are the kinds of services that bring the benefits of advanced telecommunications services to the potential “have-nots”, such as students in need of computer facilities and Internet access which their families cannot afford. We have attached a recent article from the Washington Post, “For Computer Have-Nots, A Web of School Problems” (Attachment No. 2), that more fully describes the problem.

A key thread in each of the projects is affordability and sustainability. We regularly aggregate demand through shared infrastructure to achieve physical and economic scales of efficiency. We also train residents to operate and maintain the systems and to develop new community-based applications.

We plan to do additional work with other public housing sites and community groups, and to extend our services to office buildings, small businesses and others to promote economic and community development. We also plan to develop partnerships with other neighborhood institutions such as fire stations, police stations and local businesses. We hope to institutionalize the use of networking technology by integrating it into the programs of established community organizations and to generate new money for these communities through job creation and business incubation. We are working, for example, on a proposal entitled Electronic City on the Hill, directed specifically at the Hill District neighborhood in Pittsburgh, to encourage the development of infrastructure to assist in community and economic development.

b. Access through improved regulatory policies

We have also been active in the development of Universal Service policies on the state and federal levels. In 1996, we conducted an on-line seminar for teachers and librarians to review and comment on the FCC’s proposed rules for Universal Service. The seminar educated the participants about the FCC’s proposals and the underlying issues and obtained, organized and submitted their comments to the agency. Last Fall, we conducted a similar seminar on behalf of the Governor’s Office of Information Technology and presented the results to this Commission. The FCC seminar involved 500 participants representing 50 states and Puerto Rico. The Pennsylvania seminar included 400 registrants, representing 56 of Pennsylvania’s 67 counties.

c. Access to content

Our third and related work area involves the creation of online resources. These include a variety of educational and governmental resources. As part of the Universal Service seminars, we helped encouraged the online placement of relevant government documents, which would have otherwise been largely unavailable to the public.

We encourage the Commission to make a greater effort in this regard. Commission staff have been helpful in providing us with copies of Commission orders related to this proceeding, and we appreciate their cooperation. Nevertheless, interested members of the public are unlikely to take advantage of similar help and will be discouraged from gaining access to information about the Commission’s work in view of the substantial copying charges for such documents.

3. Unmet Needs and Necessary Services

In the course of our work, we have identified substantial needs which can be met with advanced telecommunications services. These include the following:

Meeting these needs will require services that are not available at all or services that are not available at affordable prices. Both deficiencies could arguably be remedied in markets with more extensive competition. Our experiences have indicated that the current level of competition has not provided the requisite services and that improvements are needed.

There is a particular need for the following resources:

We have pursued the necessary services from Bell Atlantic. The response has been that the provision of commodity-priced high-bandwidth services would run counter to their preferred marketing model. We fear that this attitude will relegate needed high-bandwidth services to the category of premium services and prevent their adoption by the general public. There is a vicious cycle at work here: high prices discourage broad adoption of new services, and low usage justifies the high prices. Public needs are not well-served in this cycle.

We have also pursued the necessary services from local CLECs. Their response has been that their business model is to concentrate on services with a proven and reliable revenue stream and to consider new services and new technologies as additions to these basic services. We have been told that the pricing of unbundled loop elements offered by Bell Atlantic in the Commonwealth of Pennsylvania is so high that it is uneconomical for CLECs to attempt to offer residential telephone service. In the business model described above this means that there is also no consideration of any new residential services by these CLECs.

The problem is so serious that we have begun researching the feasibility of forming a CLEC to provide new data services ourselves.

4. Recommendations:

The problem can be addressed from the perspectives of supply and demand. The Commission should consider policies designed to encourage greater numbers of suppliers, which should increase the rate at which services are deployed and hold prices to their minimums. The Commission should also consider policies to translate the unmet needs into effective demand, to which service providers may respond.

a. Policies to promote competition

Competition can be encouraged through the mechanisms which most participants today will address, i.e., whether the terms approved for interconnection are sufficient to encourage the desired competition. We have no direct experience on that issue, except the responses we receive from CLECs, when we inquire about their willingness to provide services not available from Bell Atlantic. We have been told that the prices charged for the Unbundled Network Elements (UNEs) necessary to provide the services are priced too high and that the discounts on resale are too low to provide the services profitably. Our efforts to develop a CLEC may produce some more specific recommendations in the future.

Nevertheless, the policies implemented to date have not produced sufficient availability of advanced services to serve these needs. More innovative policies are needed. One example would be greater utilization of the local loop. New link technologies (such as Digital Subscriber Loop technologies) allow the provisioning of many advanced services on a single copper pair. The Commission should examine ways in which to encourage deployment of technologies which provide greater utilization of the existing local loop.

These and other policies could be examined in a proceeding to implement Section 706 of the Telecommunications Act of 1996. Section 706 requires the FCC and the states to encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans by using a broad range of measures, including price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market and other regulating methods that remove barriers to infrastructure investment. See 47 U.S.C. 157 note. This is consistent with the goal of Chapter 30 of the Public Utility Code to encourage the accelerated deployment of a universally available, state-of-the-art, interactive, public-switched, broadband telecommunications network. 66 Pa.C.S. 3001(1), 3003. As you may know, the Alliance for Public Technology (APT) recently filed a petition with the FCC asking them to establish a rulemaking proceeding to implement the requirement in section 706. We recommend that the Commission establish an investigation docket to satisfy its role on the state level. The Commission’s investigation might appropriately be consolidated with its current proceedings on Universal Service.

b. Policies to translate needs of under-served users into effective demand

The local competition that has developed to date seems to be directed at large organizations. Telecommunications service providers presumably believe that demands of residential users and small businesses are not sufficient to provide new services profitably to them. Information Renaissance believes that these under-served users have substantial needs for the services, however, and that measures may be available to translate these needs into economic demands to which the marketplace will respond.

One example consists of the Universal Service program discounts for schools and libraries. The discounts translate needs into substantial purchasing power which may attract the attention, facilities and services of telecommunications service providers. The program also permits the formation of consortia of schools and libraries to further aggregate demand and stimulate investment. This does not serve all of the needs in a region, however.

The Task Force on Universal Service established by this Commission acknowledged the potential of the discounts and consortia to stimulate infrastructure development but criticized the federal program for discouraging school and library consortia from including entities, such as municipalities, community groups and small businesses. This obstacle, perceived as burdensome, is the requirement to ensure and demonstrate that only those members of a consortium who are eligible for the E-Rate receive that discount. The Pennsylvania Task Force stated that larger mixed consortia could have a greater impact on infrastructure development. It recommended further research to determine the best means to take advantage of a common, single source to advertise aggregated demand. It stated that such a mechanism could be implemented at the state level but that it would be more effective at the federal level.

The Pennsylvania Commission’s order of March 19, 1998 in the Universal Service investigation docket at I-00940035 approved the Task Force’s report but did not specifically address the issue of mixed consortia or the need for the further research recommended by the Task Force. We ask that the Commission specifically direct the Task Force to pursue the Task Force recommendation and to examine other mechanisms to encourage consortia.

In addition, we understand that the Commission has chosen not to implement a state schools and libraries discount program at this time and that it intends to monitor the FCC’s program to determine the need for further assistance. We request that the Commission recognize the competitive benefits that such a program might provide, and seriously consider such a program on a state level. The Commission’s March 19, 1998 order recommended that that the Task Force monitor the amount of funds that schools and libraries receive under the federal program. We suggest that the Task Force should also monitor the extent to which schools and libraries actually gain access to the advanced telecommunications services.

Finally, APT also asked the FCC to create a task force to develop community/provider partnerships to create demand-pull incentives for infrastructure development for residential and other under-served areas which have the same effect as the schools and libraries discounts. We recommend that the Commission take a similar approach to develop specific implementing options within a specific time frame. Such cooperation could be useful in promoting projects, such as the Electronic City on the Hill discussed above.

5. Conclusion

We thank you for the opportunity to appear before you today. We are available to answer any questions you may have.