Free Motion to Dismiss - District Court of California - California

Case 3:07-cv-02231-RJB

Document 10-7

Filed 01/22/2008

Page 1 of 47

Federal Communications Commission

FCC 05-150

Among these customers, approximately 603 percent received cable modem service, while approximately 37.2 percent received DSL service and other broadband services provided by incumbent LECs and competitive LECs.141

52. While there is an increasing percentage of broadband users who receive DSL service, cable retains a relatively large share of the market. This reflects, in part, cable providers' substantial efforts to upgrade their individual networks to make them capable of providing cable modem service, among other services. Today, approximately 91 percent of the nation's cable systems have been upgraded to include the two-way digital capability that supports cable modem service."' As a result, the cable industry reports that more than 25 percent of cable households subscribe to cable modem service."' 53. Similarly, many incumbent LECs have upgraded, or are in the process of upgrading, their wireline networks to provide DSL broadband Internet access. In 2003, parties estimated that approximately 61 percent of the nation's households (66 million households) had access to DSL service, although only 6 percent of the nation's households subscribed to DSL-based Internet access services (6.2 million households)."' As of December 31, 2004, the number of high-speed DSL lines in service had increased to approximately 13 million lines.' 13 Further wireline network upgrades, including the deployment of hybrid fiber/copper loops and fiber to the home (FTTH), should provide additional households with access to wireline broadband service. 154

149 Id at Chart 6. 150 Fourth Section 706 Report at 14; National Cable & Telecommunications Industry, 2004 Year-End Industry Overview at 9 (2004 Year-End Industry Overview). "' 2004 Year-End Industry Overview at 9. We note that the data available regarding cable modem service generally

does not distinguish between residential and small business subscribers.
152 See Letter from Ann D. Berkowitz, Project Manager-Federal Affairs, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 02-33, Attach. at 4 (filed Apr. 30, 2003) (Verizon Apr. 30, 2003 Ex Parte Letter); BellSouth June 5, 2003 Ex Parte Letter at 22; see also High-Speed Services June 2003 Report, Table 5. The approximately 6.2 million households include households that receive DSL service from competitive LECs as well as households that receive DSL service from incumbent LECs. 153 High-Speed Services July 2005 Report, at Table 3. 154 Fourth Section 706 Report, at 16-18 (describing new fiber technologies). A hybrid loop is a local loop composed of both fiber optic cable, usually in the feeder plant, and copper wire or cable, usually in the distribution plant. By "FTTH loop," we mean a local loop consisting entirely of fiber optic cable (and the attached electronics), whether lit or dark fiber, that connects a customer's premises with a wire center (i.e., from the demarcation point at the customer's premises to the central office). Triennial Review Order, 18 FCC Rcd at 17475-17501, Appendix B (adopting section 51.319 of the Commission's rules). The deployment of hybrid loops allows an incumbent LEC to deploy DSLAMs in remote terminals and thus reduce the distance between a DSLAM and an end user's premises to one that can accommodate DSL service. See, e.g., Collocation Remand Order, 16 FCC Rcd at 15460-61, para. 46 (recognizing that in order to provide DSL service, a LEC must deploy a DSLAM within a reasonable distance of the end user's premises). Incumbent LECs typically require a distance of no more than 18,000 feet. Id. Some competitive LECs will provide DSL service at greater distances. See, e.g., Petition of Cavalier Telephone LLC Pursuant to Section 252(e) (5) of the Communications Act for Preemption of the Jurisdiction of the Virginia State Corporation Commission Regarding Interconnection Disputes with Vernon Virginia, Inc. and for Arbitration, WC Docket No. 02-359, Memorandum Opinion and Order, 18 FCC Rcd 25887, 25929-34, paras. 72-81 (2003).
30

Case 3:07-cv-02231-RJB

Document 10-7

Filed 01/22/2008

Page 2 of 47

Federal Communications Commission

FCC 05-150

modem and DSL service."' Changes in technology are spurring innovation in the use of networks. As discussed below, there is increasing competition at the retail level for broadband Internet access service as well as growing competition at the wholesale level for network access provided by the wireline providers' intramodal and intermodal competitors."' We find that an emerging market, like the one for broadband Internet access, is more appropriately analyzed in view of larger trends in the marketplace, rather than exclusively through the snapshot data that may quickly and predictably be rendered obsolete as this market continues to evolve. 51. At the outset, we note that, while household computer penetration is growing, only 54.6 percent of U.S. households subscribe to either broadband or narrowband Internet access service.' 42 We also note that roughly 20 percent of consumers with access to advanced telecommunications capability subscribe to services providing that capability.143 Some industry analysts predict that over the next decade, nearly 90 percent of all Americans will go on line from home via broadband networks that are dramatically faster than today's broadband networks. 144 We recognize that cable modem service is the most widely used means by which residential and small business obtain broadband service today.145 As of December 31, 2002, facilities-based providers were providing approximately 17.4 million high-speed lines to American consumers and small businesses. 146 Among these customers, 65 percent received cable modem service, while approximately 32 percent received DSL service and other broadband services provided by incumbent LECs and competitive LECs.147 As of December 31, 2004, the number of high-speed lines had more than doubled with facilities-based providers providing approximately 35 million high-speed lines to American consumers and small businesses."' 140 See, e.g., Fourth Section 706 Report, at 16-23, 45 (describing broadband technologies generally). Based on the Commission's most recent broadband data report, the combined market share of high-speed lines via emerging broadband platforms is approximately 1.5% (not including new all fiber networks). See High-Speed Services July 2005 Report, at Table 1. 141 See infra Part V.B.2.d (discussing various wholesale arrangements and incentives to make these available); Broadband 271 Forbearance Order, 19 FCC Rcd at 21508-09, para. 26. 14' Federal Communications Commission, Wireline Comp. Bur., Industry Analysis & Technology Div., Trends in Telephone Service, at 2-10 (Apr. 2005) (Trends in Telephone Service April 2005 Report) (citing NTIA Broadband Report). 143 Fourth Section 706 Report, at 10, 38 (describing advanced services lines as having transmission speeds of more than 200 kbps capability in the upstream (customer -to-provider) and downstream (provider -to-customer) directions, and high-speed lines as those having a transmission speed of more than 200 kbps capability in at least one direction). The Commission's data collection program requires service providers to identify each zip code in which a provider has at least one high-speed service subscriber (i.e., a subscriber using a high -speed Internet access line). As of December 31, 2004, providers reported that they had subscribers to high-speed services in 95% of the nation's zip codes. In 83% of the nation's zip codes, more than one provider reported having subscribers. The Commission has stated that 99% of the country's population lives in 95% of the zip codes where a provider reports having at least one high-speed service subscriber. High-Speed Services July 2005 Report, at 4. 144 PEW Internet & American Life, The Future of the Internet, at 41-42 (Jan. 9, 2005). 145 See High-Speed Services July 2005 Report, at Table 3; Triennial Review Order, 18 FCC Rcd at 17135, para. 262 (citing High- Speed Services December 2002 Report, at Table 5). 146 High-Speed Services June 2003 Report, at Table 3.
147 Id.

14' High-Speed Services July 2005 Report, at Table 3.
29

Case 3:07-cv-02231-RJB

Document 10-7

Filed 01/22/2008

Page 3 of 47

Federal Communications Commission

FCC 05-150

54. Approximately 83.2 percent of DSL subscribers receive broadband service from the BOCs, with another 12.5 percent receiving broadband service from independent incumbent LECs.155 Competitive LECs provide the remaining DSL subscribers with broadband service as intramodal competitors of the incumbent LECs.156 Competitive LECs generally provide these services using their own facilities in combination with UNEs leased from incumbent LECs pursuant to section 251(c)(3) of the Act.157 Some competitive LECs, however, provide DSL services using their own facilities exclusively."' Competitive LECs offer consumers broadband Internet access directly or enter into service arrangements with independent ISPs that offer competing broadband Internet access services."' Specifically, competitive LECs currently provide wireline broadband Internet access service to approximately 597,000 end-user lines. "o 55. In sum, while cable modem and DSL clearly have exhibited significant growth over the last few years, market penetration for these two technologies still is far below the size of the potential market. The 20 percent cumulative penetration rate for broadband services stands in marked contrast to other, more mature markets the Commission has examined and regulated to varying degrees. When the Commission determined that AT&T was no longer dominant in the long distance service market, that market was mature. About 94 percent of American households had telephone voice service, and the vast majority of the telephones provided equal access to long distance service."' More generally, telephone voice service has had market penetration rates ranging from 91.4 percent to 95.5 percent of all American households over the past 20 plus years.162 When compared to the market penetration rate for telephone voice service, which typifies a long-established, mature market for network-based services, the market penetration rate

155 High-Speed Services July 2005 Report, Table 5.
156 Id

157 The Commission's Triennial Review Order expressly reaffirmed the competitive LECs' right to obtain unbundled access to stand-alone copper loops in order to provide broadband transmission services. See Triennial Review Order, 18 FCC Red at 17128-32, paras. 248-54. In addition, we reaffirmed the incumbent LECs' obligation to provide competitive LECs with the ability to line split (i.e., where one competitive LEC provides narrowband voice service over the same loop that a second competitive LEC uses to provide DSL service). Id. at 17130-31, paras. 251-52. In that order, the Commission also grandfathered existing line sharing customers and declined to reinstate the Commission's vacated line sharing rules. The Commission instead established a three-year transition after which any new customer must be served through a line splitting arrangement, through use of the stand-alone copper loop, or through an arrangement that a competitive LEC has negotiated with the incumbent LEC to replace line sharing. Line sharing allowed a competing carrier to provide DSL service over the high-frequency portion of the same loop that the incumbent LEC uses to provide voice service. Id. at 17132-41, paras. 255-69. The D.C. Circuit expressly upheld the Commission's decision not to require line sharing. USTA II, 359 F.3d at 585. As we discuss in part VI.D, below, the decisions contained in this Order have no affect on competitive LECs' ability to obtain UNEs, or on the section 251(c) obligations of incumbent LECs. "' See ALTS 01-337 Comments at 3 (stating that competitive LECs have invested over $56 billion to construct new broadband networks since the passage of the 1996 Act). 159 See Qwest May 23, 2003 Ex Parte Letter, Attach at 4; SBC Mar. 7, 2003 Ex Parte Letter, Attach. at 12.
160 High-Speed Services July 2005 Report, at Table 5.

161 Trends in Telephone Service April 2005 Report, at Table 16;. see also Motion of AT&T Corp. to be Reclassified as a Non-Dominant Carrier, Order, 11 FCC Red 3271 (1995). 162 Trends in Telephone Service April 2005 Report, at Table 1.
31

Case 3:07-cv-02231-RJB

Document 10-7

Filed 01/22/2008

Page 4 of 47

Federal Communications Commission

.

FCC 05-150

for broadband Internet access services indicates that this emerging market has the potential to grow significantly in the years ahead. 56. Given recent trends, the market penetration of cable modem and DSL broadband Internet access services, in particular, could grow dramatically in the future. 163 We expect these two market leaders to continue to compete head-to-head in a way that could result in higher customer penetration rates for one or both services.164 Cable modem service and DSL broadband Internet access services currently compete directly with each other in certain areas, are marketed against each other, are sold almost exclusively to residential and small business customers, and often may be perceived by consumers as close substitutes for each other."' Continuous change and development are likely to be the hallmark of the marketplace for broadband Internet access at both the retail and wholesale levels over the next several years.166 57. We expect providers of both platforms will continue to invest and extend the reach of their services. We anticipate that, as the availability of cable modem and DSL broadband Internet access services grows with the modernization of network infrastructure and increased service deployment, more households will have the option of choosing between the cable and DSL broadband options. Increased intermodal and intramodal competition will continue to encourage these two broadband providers to deploy broadband Internet access services throughout their respective service areas. 167 In addition, the threat of competition from other forms of broadband Internet access, whether satellite, fixed or mobile wireless, or a yet-to-be-realized alternative, will further stimulate deployment of broadband infrastructure, including more advanced infrastructure such as fiber to the home. 58. These emerging broadband platforms exert competitive pressure even though they currently have relatively few subscribers compared with cable modem service and DSL-based Internet access service."' 163 See Fourth Section 706 Report, at 13-16 (describing the technology and pricing that is driving the increasing demand for cable modem and DSL services). 164 Broadband 271 Forbearance Order, 19 FCC Rcd at 21505-07, para. 22 (stating that cable providers have a significant role in encouraging the BOCs to provide competitive DSL services). 161 Id. at 21505-07, para. 22; see also NTIA Broadband Report, at 7 (explaining generally the growth in market share for cable modem and DSL service); Robert W. Crandall, J. Gregory Sidak, & Hal J. Singer, The Empirical Case Against Asymmetric Regulation of Broadband Internet Access, 17 Berkeley Technology L.J. 953, 953-87 (2002). The authors develop an econometric model which estimates own price and cross price elasticities for cable modem and DSL. Based on this model, the authors conclude that price and cross-price elasticities are high, and that cable modem and DSL are substitutes when both are available to the mass market consumer. Id. at 957. 166 See, e.g., High-Speed Services July 2005 Report, at Tables 1-2, Charts 1-2 (showing growth of various broadband technologies over the past five years). 167 See Fourth Section 706 Report at 14-16 (describing pricing for cable modem and DSL service). Verizon has recently decreased its prices, both retail and wholesale, for DSL service, http://www22.verizon.com/ForHomeDSL/channels/dsl/forhomedsl.asp?ID=Res announcing Verizon's limited time offer of $19.95 per month for DSL service for the first three months of a one-year commitment. In addition, SBC's retail Internet access rates are now set at an introductory rate of $14.95 per month for a one-year term. "SBC Communications Breaks New Ground for Consumers with Residential DSL for $14.95 When Ordered Online," http://www sbc com/g_en/press-room?pid=4800&cdvn=news&newsarticleid=21690 announcing SBC's 13-state $14.95 price decrease for its DSL Express service. BellSouth has also lowered its retail DSL prices. Dionne Searcey, BellSouth Shaves DSL Prices, Wall St. J. (July 20, 2005) (describing BellSouth's permanent DSL price cut by $10.00 to $32.95 per month for customers who also buy its basic phone service). 168 See, e.g., BellSouth June 5, 2003 Ex Parte Letter at 11-12.
32

Case 3:07-cv-02231-RJB

Document 10-7

Filed 01/22/2008

Page 5 of 47

Federal Communications Commission

FCC 05-150

Ku-band satellite service is now available in most areas of the United States and is most attractive in areas that lack access to cable modem and DSL-based Internet access service, largely because this satellite service costs more than those alternatives."Fixed wireless service is also available to provide highspeed Internet access in substantial. areas of the nation."' By the end of 2002, satellite and fixed wireless providers reported about 257,000 high-speed Internet access service residential and small business subscribers."' Today, they report an increased subscriber base of approximately 422,000 lines in service."2 59. At the same time as cable modem and DSL broadband Internet access services are increasing market penetration, these other technology-based solutions could gain market share. In the near future, satellite and fixed wireless will likely continue to serve, at the very least, specialized geographic parts of the market not served by DSL or cable modems. 171 If more customers adopt satellite and fixed wireless solutions, the relative prices of those solutions could decline, which would make the services more competitive with cable modem and DSL broadband Internet access services. It is unclear in the current developing market which technology or technologies will serve the majority of customers when the market reaches greater maturity. 60. We recognize that the attributes of the available broadband platforms vary, particularly as to price, speed, and ubiquity. We expect that customers will weigh these attributes for each platform and make service-related decisions based on their specific needs. For example, a customer may select a broadband Internet access service with a somewhat slower speed than that associated with other service platforms in return for the lower price of the selected service. 61. As the Internet and related applications mature and continue to evolve, the demand for broadband Internet access services will likely grow. The presence of more content available through the Internet and the enhanced means of presenting the content, together with growth in broadband-related applications, such as streaming video, will lead more subscribers to seek broadband Internet access service. As the number of subscribers grows, so does the opportunity for alternative technologies and their respective providers. As any provider increases its market share or upgrades its broadband Internet access service, other providers are likely to mount competitive challenges, which likely will lead to wider deployment of broadband Internet access service, more choices, and better terms. 174 62. We disagree with commenters that equate the ability ofISPs to obtain wireline broadband transmission services on a Title II basis with the ability of consumers to obtain facilities-based competitive broadband Internet access services. 175 A regulatory regime that promotes a competitive broadband Internet access services market where consumers have a choice of multiple providers is not
169 Fourth Section 706 Report, at 23. Satellite providers are in the process of increasing by a large multiple the amount of bandwidth they make available for broadband, with several launches of new satellites scheduled during the near future. Id. at 23, 46. See supra note 95. Satellite currently has just less than a 1% broadband market share. 10 Fourth Section 706 Report, at 20-22. 17' High-Speed Services June 2003 Report, at Table 3. 12 High-Speed Services July 2005 Report, at Table 3. 173 See Fourth Section 706 Report, at 18-23.

at 44-45 (describing the broadband trends). 171 See, e.g., AOL Comments at 21-23; EarthLink Comments at 16-27; MCI Reply at 14-18.
14 See id 33

et al.

Comments at 24-32; Ad Hoc

Case 3:07-cv-02231-RJB

Document 10-7

Filed 01/22/2008

Page 6 of 47

Federal Communications Commission

FCC 05450

necessarily the same as a regulatory regime that mandates that one particular type of broadband Internet access service transmission technology, and one alone, is available, on a nondiscriminatory basis, to any entity that desires to become an ISP.16 Vigorous competition between different platform providers already exists in many areas and is spreading to additional areas."' While we recognize that broadband Internet access service is not ubiquitously available today, this market is rapidly changing and growing."' In addition, service providers tend to set prices on a national or regional basis regardless of whether there are multiple broadband providers serving local markets.1' 63. It is difficult to make a meaningful assessment of the market for wholesale access to the transmission component of broadband Internet access service. Although we recognize that, in many areas, the incumbent LEC is currently the only wholesale provider of this transmission component, this observation, on its own, is not dispositive. At this time, facilities-based wireline carriers are the only providers of broadband Internet access services that are compelled by regulation to make such an offering available. As stated above, this compulsion is not the result of the Commission's analysis of broadband Internet access services specifically, but rather is the product of the application of legacy rules adopted decades ago.18' Therefore, we cannot state unequivocally that incumbent LECs would not otherwise provide wholesale access, absent this compulsion. In fact, the record shows that incumbent LECs would and indeed already do provide such access, albeit through arrangements other than a mandatory tariff regime that requires a standardized general offering."' In addition, this regulatory compulsion of facilities-based wireline carriers may be impeding the development of competitive alternatives, most notably through entry by other broadband Internet access platform providers. Because our rules require a particular type of generalized wholesale offering, they may reduce incentives for ISPs to seek alternative arrangements from other broadband Internet access platform providers and for those other providers to offer such arrangements.18'

16 The Commission concluded in the Broadband 271 Forbearance Order that competition from multiple sources and technologies in the retail broadband market, especially from cable modem providers, will encourage the BOCs to utilize wholesale customers to grow their share of the broadband markets and retain their business. Broadband 271 Forbearance Order, 19 FCC Rcd at 21508, para. 26. 177 See supra Part V.B.2.a; Broadband 271 Forbearance Order, 19 FCC Rcd at 21505-10, paras. 22-29.
178

See supra Part V.B.2.a.

19 See, e.g., supra n.167 (describing the BOCs' regionwide DSL pricing offers). 180 See NCTA v. Brand X, slip op. at 30. 181 For example, BellSouth indicates that few unaffiliated ISPs continue to take its tariffed DSL transport service. Instead, many ISP competitors have entered into commercial contracts for broadband Internet access capability because it meets their demands better than the Computer Inquiry tariffed transmission-only component. See Letter from Glenn T. Reynolds, Vice President- Federal Regulatory, BellSouth, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 02-33, Attach. at 8 (filed Apr. 25, 2005) (BellSouth Apr. 25, 2005 Ex Parte Letter) (noting that only one percent of the total broadband customers in BellSouth's nine-state region obtain service from ISPs using BellSouth's Computer Inquiry-required tariffed DSL transmission offering, but over 26% of the customers are served by ISPs using BellSouth's contract offering (i.e., its regional broadband aggregation network (RBAN) offering). 182 See, e.g., BellSouth June 5, 2003 Ex Parte Letter at 18 (`BellSouth's ability to negotiate and enter into such tailored agreements [for ISPs] is frustrated immensely by the existing regulatory burdens of having to offer the underlying tariff components immediately to any other requesting carrier anywhere in BellSouth's region at tariffed rates.").
34

Case 3:07-cv-02231-RJB

Document 10-7

Filed 01/22/2008

Page 7 of 47

Federal Communications Commission

FCC 05-150

64. Based on the record before us, we expect that facilities-based wireline carriers will have business reasons to continue making broadband Internet access transmission services available to ISPs without regard to the Computer Inquiry requirements. 18' The record makes clear that such carriers have a business interest in maximizing the traffic on their networks, as this enables them to spread fixed costs over a greater number of revenue-generating customers. 114 For their part, cable operators, which have never been required to make Internet access transmission available to third parties on a wholesale basis,"' have business incentives similar to those of incumbent LECs to make such transmission available to ISPs, and are continuing to do so pursuant to private carriage arrangements.1 ' Given the Supreme Court's decision that cable operators can offer the transmission underlying cable modem service as a functionally integrated part of a finished information service without becoming subject to regulation under Title II,18' we expect that these wholesale arrangements will continue to evolve. We believe that the convergence of these two factors - increasing competition among facilities-based broadband providers and the potential for competition in wholesale network access - will sustain and increase competitive choice among broadband providers and Internet access products. b) Technological Innovation 65. We find that application of the Computer Inquiry requirements to wireline broadband Internet access services, and any alternative requirements that would guarantee ISPs access to the transmission component of that service, would impede the development and deployment of innovative wireline broadband Internet access technologies and services. As noted above, these requirements slow innovation because vendors do not create new technologies with the Computer Inquiry requirements in mind."' Deployment to consumers of these technologies then, at best, is delayed and, in many cases, may be avoided altogether. Broadband Internet access services are also not developing in ways that neatly fall within existing regulatory classifications or the current Computer Inquiry requirements (i.e., they cannot be easily separated into discrete information service and telecommunications service components)."' As
183 See infra Part V.13.2.d.

184 Letter from Jeffry Brueggeman, General Attorney, SBC, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 02-33, Attach. at 8 (filed July 31, 2003) (SBC July 31, 2003 Ex Parte Letter); BellSouth June 5, 2003 Ex Parte Letter at 16-18; Broadband 271 Forbearance Order, 19 FCC Red at 21508-09, para. 26. "I NCTA v. Brand X, slip op. at 30; Cable Modem Declaratory Ruling, 17 FCC Rcd at 4823-25, paras. 39-43. 186 See, e.g., Comcast Corp., 2004 Form 10-K Annual Report filed with the Securities and Exchange Commission, at 7 (Feb. 23, 2005) (stating that Comcast and a number of cable operators have reached agreements to provide unaffiliated ISPs access to their cable systems in the absence of regulatory requirements). In addition, AOL Time Warner, as a result of a consent decree with the Federal Trade Commission, provides certain independent ISPs with access to its network of over 12 million subscribers. Cable Modem Declaratory Ruling, 17 FCC Red at 4828-29, para. 52 & n.196. 18' NCTA v. Brand X, slip op. at 6-15. 188 See, e.g., Verizon June 26, 2003 Ex Parte Letter at 1-3; Letter from L. Barbee Ponder IV, Senior Regulatory Counsel-D.C., BellSouth, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 02-33, Attach. at 5 (filed May 23, 2003) (BellSouth May 23, 2003 Ex Parte Letter) (stating that next generation broadband equipment does not provide demarcations for regulatory purposes, and that vendors have no incentives to create demarcations because only four entities need or want them). 189 See Verizon June 26, 2003 Ex Parte Letter at 2 (noting that in past decades, "equipment manufacturers designed central office equipment based on the needs of the Bell companies' and that "[t]oday's manufacturers have broader markets and are designing the next generation of equipment for a broader base of IP network providers").
35

Case 3:07-cv-02231-RJB

Document 10-7

Filed 01/22/2008

Page 8 of 47

Federal Communications Commission

FCC 05-150

a result, unlike cable modem providers or other broadband Internet access service competitors, wireline carriers must make either of two less-than-optimal choices when they seek to deploy advanced network equipment: either they must decide not to use all the equipment's capabilities, thereby reducing their operational efficiency;"' or they must defer deployment while the manufacturer re-engineers it to facilitate compliance with the Computer Inquiry rules, thereby creating unnecessary costs and service delays."' 66. Wireline commenters argue that their inability to integrate more efficient equipment into wireline networks in a timely and efficient manner limits their ability to offer innovative broadband Internet access services to customers.19' They also contend that these constraints hinder their ability to respond to requests for new or modified innovative features or services."' For example, some commenters argue that manufacturers have little incentive to design next generation broadband equipment that facilitates compliance with the Computer Inquiry obligations as the majority of broadband platform providers neither need nor want this capability."' As a result, these carriers maintain that they are faced with a decision either to forgo the use of more efficient or innovative equipment or to incur substantial additional costs and development time to have the vendor "de-integrate" the more efficient, integrated equipment simply to comply with the Computer Inquiry requirements.1 ' These increased costs and delays often deter a carrier from deploying new broadband technologies."' 67. Other commenters suggest that because of the BOCs' size and influence, they are well-positioned to demand that vendors meet their requirements that innovative broadband equipment and new functionalities comply with the Computer Inquiry obligations."' Assuming arguendo that this is true, to
'90 For example, SBC explains that, in order to comply with the Computer Inquiry rules, it often must disable or "turn off' protocol conversion functionality in its broadband Internet access equipment. See SBC July 31, 2003 Ex Parte Letter at 12.

191 See Verizon June 26, 2003 Ex Parte Letter at 3. 192 See, e.g., SBC Mar. 7, 2003 Ex Parte Letter at 8 (arguing that Computer H's stand-alone telecommunications service requirement "[r]estricts full utilization of technology integration in design and evolution of broadband networks" and in "developing broadband services," and, thus, limits SBC's "ability to offer new and innovative integrated broadband services to consumers"); see also Verizon May 20, 2003 Ex Parte Letter, Attach. at 9; Letter from Ann D. Berkowitz, Project Manager-Federal Affairs, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 02-33, Attach. at 10 (filed Mar. 17, 2003) (Verizon Mar. 17, 2003 Ex Parte Letter). '93 See, e.g., BellSouth June 5, 2003 Ex Parte Letter at 18. Non-carrier commenters have also argued that the Computer Inquiry regime is inappropriate for today's broadband market. See, e.g., Alcatel Comments at 8 (contending that the Commission should seek to remove some of the network unbundling obligations placed on incumbent LECs); HTBC Reply at 3-8 (advocating a minimally regulatory environment for wireline broadband transmission but stating the Commission should require incumbent LECs to make any arrangements with their affiliated ISPs available to unaffiliated ISPs in a nondiscriminatory manner at least for the next two years).
194 See, e.g., BellSouth Apr. 25, 2005 Ex Parte Letter, Attach. at 8; BellSouth May 23, 2003 Ex Parte Letter, Attach. at 5; see also Catena Comments at 6 (noting that several telecommunications equipment manufacturers have halted or decreased their DSL technology activities as the current regulatory environment is retarding the investment in new technologies). 795 See, e.g., SBC July 31, 2003 Ex Parte Letter at 11-12; Verizon June 26, 2003 Ex Parte Letter at 3. 196 See, e.g., SBC Comments at 26; Verizon May 20, 2003 Ex Parte Letter, Attach. at 9-13 (outlining impediments to offering VolP services). 197 See, e.g., Letter from Richard S. Whitt, Director-Federal Advocacy, MCI, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 02-33, Attach. at 11 n.13 (filed Oct. 10, 2003) (MCI Oct. 10, 2003 Ex Parte Letter); Letter from (continued ...)
36

Case 3:07-cv-02231-RJB

Document 10-7

Filed 01/22/2008

Page 9 of 47

Federal Communications Commission .

FCC 05-150

some extent, the fact that BOCs can exert some influence does not necessarily make the Computer Inquiry obligations or a less onerous broadband Internet access transmission obligation desirable public policy, nor does it mean that the resulting equipment is as efficient or innovative as it could otherwise be. The issue is not whether the BOCs could have this "de-integrated" equipment produced, rather it is whether the production of this equipment would yield benefits that outweigh the obvious technological costs. These commenters fail to recognize that manufacturers develop broadband equipment that pushes technology in the direction they think will best respond to future consumer demands (which is currently toward equipment that integrates information service and transmission capabilities in a manner that allows functions to be performed at multiple points within a broadband network and closer to the end user than ever before)."' Our rules should not force technological development in another, less efficient direction. 68. Some carriers argue that compliance with the Computer Inquiry obligations requires costly redundant systems and duplicative processes that result in operational inefficiencies."' For example, BellSouth states that it incurs significant costs solely to comply with those obligations. These costs are incurred, according to BellSouth, because it must: maintain separate customer service centers, systems, and processes for its telecommunications service and broadband Internet access service operations;... dispatch both telecommunications service and information service technicians to install DSL service or respond to customer-reported problems;201 and incur additional transport costs to comply with the Commission's "two-mile" rule 202 While other commenters maintain that these costs do not warrant elimination of the Computer Inquiry requirements,"' we find that the costs on the record are sufficient to act as an investment disincentive. As explained below, consistent with our obligations under section 706, we must consider this impact in our overall analysis of the costs and benefits of retaining these rules.

(continued from previous page) David L. Lawson, Counsel for AT&T, Sidley Austin Brown & Wood LLP, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 02-33, at 5-6 (filed Aug. 14, 2003).
"See supra paras. 65-66.

199 See, e.g., Verizon June 26, 2003 Ex Parte Letter at 1-4; BellSouth Apr. 2, 2003 Ex Parte Letter, Attach. at 6-9. 200 See, e.g., BellSouth Apr. 2, 2003 Ex Parte Letter at 8 (an estimated cost of $13.5 million per year). 201 Id. (costing approximately $6 million per year). BellSouth claims that it incurs these costs because it must treat its broadband Internet access service customer in the same manner as it would treat an independent ISP's customer. Thus, for example, if a BellSouth telephone service technician discovers a problem with a DSL connection, BellSouth must dispatch a different technician to correct that problem for the end-user consumer. See also id. at 9 (stating that it incurs approximately $9.5 million per year in other unnecessary system redundancy costs). 2021d. at 11. The two-mile rule requires BOCs to charge their "collocated enhanced service operations a rate for distance-sensitive transmission equal to a rate for transmission paid by non-collocated operations at a two mile distance from the [central office]." See Filing and Review of Open Network Architecture Plans, 5 FCC Rcd 3103, 3110, para. 66 & n.I l l (1990). BellSouth maintains that this rule is administratively costly and archaic since all packet traffic is aggregated efficiently at the central office and because ISPs are able to collocate there pursuant to the expanded interconnection rules. BellSouth Apr. 2, 2003 Ex Parte Letter at 11. 203 See, e.g., Letter from Mark J. O'Connor, Counsel for EarthLink, Inc., Lampert & O'Connor, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 02-33, Attach. at 3-7 (filed May 12, 2003) (EarthLink May 12, 2003 Ex Parte Letter); see also Letter from Kenneth R. Boley, Counsel for EarthLink, Inc., Lampert & O'Connor, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 02-33, Attach. at 2-3 (filed Mar. 19, 2003) (EarthLink Mar. 19, 2003 Ex Parte Letter).
37

Case 3:07-cv-02231-RJB

Document 10-7

Filed 01/22/2008

Page 10 of 47

Federal Communications Commission

FCC 05-150

69. The fact that carriers incur costs, potentially even significant costs, to comply with our regulations is not, alone, a basis for eliminating such regulations. To the extent such costs are incurred to achieve statutory obligations or important policy objectives, they are a necessary component of operating in a regulated industry 204 But when, as a relative matter, the regulations' costs outweigh their benefits, or are no longer necessary to achieve the desired objectives, we must evaluate whether our obligations and objectives can be met in a manner that reduces or eliminates such costs. This becomes even more critical if there is evidence that the regulation actually impedes or frustrates the accomplishment of important statutory goals. 70. At the time the Computer Inquiry rules were adopted (and even thereafter as they were being revised and refined to better balance costs and benefits), the public benefits with respect to narrowband network-based services justified the costs. For example, it was much clearer at that time that because computer processing occurred at the network's edge or outside the network, the major innovation would occur there too. The Computer Inquiry rules themselves reflect a fairly static picture of network development, and an assumption that a line could be drawn between the network functions and computer processing without impeding technological innovation. Today, this line is even more blurred than it was when the Commission adopted its Computer II Final Decision. Innovation can occur at all network points and at all network layers as well as in non-network applications and equipment. Continued application of the Computer Inquiry rules, however, would prevent much of this innovation from occurring.20' This by-product of our current regulations is a persuasive factor for their removal. c) New Services 71. One of the primary purposes of this technological innovation would be to let wireline broadband Internet access services providers, like their competitors, produce new or improved services in response to consumer demands 206 Several parties argue that the Computer Inquiry requirements prevent them from altering business priorities in response to changing market demands, impede their ability to take advantage of business opportunities due to "time to market" issues, and provide competitors with advance notice of innovative service enhancements, thus eliminating any potential wireline broadband competitive advantage vis-a-vis cable modem or other platform providers.20' For example, Qwest points to the inherent regulatory delay that occurs through the network change disclosure process, the web posting requirements, and tariffing requirements, which a BOC must comply with before making any change to its network that enhances or upgrades its Internet access services.20' Verizon contends that before it can decide whether it will provide an ISP customer with a requested new Internet access service capability, it

204 See, e.g., IP-Enabled Services, WC Docket No. 04-36; E911 Requirements for IP-Enabled Service Providers, WC Docket No. 05-196, First Report and Order and Notice of Proposed Rulemaking, FCC 05-116, at paras. 3-5, 3653 (rel. June 3, 2005) (VoIP E911 Order), petitions for review pending sub nom. Nuvio Corp. v. FCC, D.C. Cir. No. 05-1248 (and consolidated cases) (filed July 11, 2005).

205 See, e.g., Catena Comments at 5-6; Verizon June 26, 2003 Ex Parte Letter at 3-6; BellSouth Apr. 2, 2003 Ex Parte Letter, Attach. at 5.
206 See Wold Communications, 735 F.2d at 1475 (citing Western Union Telegraph v. FCC, 674 F.2d 160 (2d Cir. 1982) ("newly unleashed market forces" constitute a reasonable regulatory tool). Where technology is fast-moving and arcane, the D.C. Circuit gave the Commission "particular deference" in determining whether the treatment of a service as non-common carrier would bring sufficient public interest benefits. Id. at 1468. 207 See, e.g., Qwest Apr. 10, 2003 Ex Parte Letter, Attach. at 11. 208 Id.
38

Case 3:07-cv-02231-RJB

Document 10-7

Filed 01/22/2008

Page 11 of 47

Federal Communications Commission

FCC 05-150

must analyze each function of the proposed capability to determine its classification under the Computer Inquiry regime2.. and then determine the associated requirements for compliance."' Verizon states that this compliance review often involves complex and lengthy new system development or modification to accommodate the Computer Inquiry access obligations without any knowledge or assurance that other ISPs will even want such access. As a result, Verizon states that it frequently must deny requests for new Internet access service capabilities because the process to accommodate them under existing Computer Inquiry regulations is prohibitively expensive."' We find that these costs, inefficiencies, and delays are significant and substantially impede network development. We therefore disagree with commenters that claim that the record contains no evidence that costs, inefficiencies, and investment delays have occurred that would justify the elimination of the Computer Inquiry requirements."' 72. Based on the record before us, we conclude that eliminating the Computer Inquiry rules at this time will make it more likely that wireline network operators will take more risks in investing in and deploying new technologies than they are willing and able to take under the existing regime .2" Tailored private contractual agreements, in general, provide service providers more flexibility in developing a new technology and more incentives to do so 214 As the Commission found in the Transponder Sales Order, a service provider is more likely to invest in technologies if the service provider is able to obtain assurances through private contracts that the technologies will be used.21$ Private commercial contracts likewise provide assurances to potential customers that capacity will be available.216 Indeed, a number of carrier commenters indicate that their preferred means of offering wireline broadband transmission service is through customized arrangements tailored to the particular needs of requesting ISP customers.217 They show, in particular, that through the ability to engage in these types of non-common carrier arrangements

209 See supra n.78 (describing the four "basic service elements"). 210 See, e.g., Verizon June 26, 2003 Ex Parte Letter at 4; Verizon May 20, 2003 Ex Parte Letter, Attach. at 11-13. 211 See, e.g., Verizon June 26, 2003 Ex Parte Letter at 4-6; Verizon May 20, 2003 Ex Parte Letter, Attach. at 11-13; see also Letter from L. Barbee Ponder IV, Senior Regulatory Counsel-D.C., BellSouth, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 02-33, at 1-9 (filed July 10, 2003) (BellSouth July 10, 2003 Ex Parte Letter); BellSouth Apr. 25, 2005 Ex Parte Letter, Attach. at 7-10. 212 See, e.g., AT&T Comments at 62-72; GCI Comments at 23-27; Ohio ISP Assoc. et al. Comments at 56-58; MCI et al. Comments at 39-42; AT&T Reply at 35-42; AT&T Mar. 14, 2003 Ex Parte Letter at 15; see also Covad Comments at 32-36. 213 See, e.g., Verizon June 26, 2003 Ex Parte Letter at 4, 6.
214 See, e.g., Transponder Sales Order, 90 FCC 2d at 1250-52, paras. 31-34; (discussing the benefits of non-common carriage contracts).
see also in, fi-a

at paras. 87-88

215 Transponder Sales Order, 90 FCC 2d at 1250-52, paras. 31-34 (noting typical long lead time between inception of a technology and its deployment). 216 See id.
211 See NARUC 1, 525 F.2d at 643 (the inquiry is whether there is reason to believe that the service provider will, in

fact, serve the public indifferently even absent a regulatory compulsion to do so). Consequently, we disagree with EarthLink, which argues that the Commission's determination as to whether this service must be a common carrier service begins and ends with the recognition that incumbent LECs provide wholesale DSL transmission to ISPs on a tariffed (i.e., indifferent) basis. EarthLink Apr. 29, 2003 Ex Parte Letter at 9-11.
39

Case 3:07-cv-02231-RJB

Document 10-7

Filed 01/22/2008

Page 12 of 47

Federal Communications Commission

FCC 05-150

(rather than "cookie-cutter" common carrier offerings available indiscriminately to all ISPs), they will be able to develop more technologically innovative broadband offerings to meet consumer needs.21' 73. As discussed above, some commenters argue that the transmission component of wireline broadband Internet access service must continue to be regulated as a common carrier service because wireline carriers currently offer these transmission services on such a basis."' In doing so, however, these parties fail to recognize that a Commission determination regarding the regulatory status of a service depends on, among other things, what practice and experience indicate the likely character of the service offering would be, assuming the carrier could decide how it would offer the service.22' Merely because facilities-based wireline carriers offer some common carrier services does not mean that all their services must be similarly offered 221 The Commission, upheld by the courts, has provided carriers the flexibility to offer services that were previously regulated under Title II on a common carrier or noncommon carrier basis 222 d) Wireline Broadband Internet Access Service Providers' Business Incentives 74. Given the nature and history of the broadband Internet access services industry, we expect that wireline broadband transmission will remain available to ISPs and others without any Computer Inquiry requirements. Incumbent LECs have represented that they not only intend to make broadband Internet 211 See, e.g., SBC July 31, 2003 Ex Parte Letter at 4-15; Verizon June 26, 2003 Ex Parte Letter at 4, 6; BellSouth June 5, 2003 Ex Parte Letter at 12 (noting that BellSouth negotiated a private agreement with an independent ISP because BellSouth's tariffed unbundled broadband transmission offering was "cumbersome, inefficient and not competitive'); Qwest May 23, 2003 Ex Parte Letter, Attach. at 17-18.
u9 See infra Part V.D.

220 See Vitelco v. FCC, 198 F.3d at 924 (citing NARUC 1, 525 F.2d at 642, for the proposition that the second prong of the NARUC I test examines whether there are reasons implicit in the nature of the offering to expect an indifferent holding out to the eligible user public); see also NARUC 1, 525 F.2d at 643-44 (noting that the inquiry into whether specialized mobile radio service (SMRS) providers will hold themselves out indifferently absent a regulatory compulsion to do so is "highly speculative" because no operating SMRS providers were then in existence); see also BellSouth June 5, 2003 Ex Parte Letter at 21 (asserting that the previous regulatory compulsion cannot be used as a basis for claiming that carriers have chosen to provide broadband transmission on a common carrier basis). 22. 47 U.S.C. § 153(10) (defining common carrier); see, e.g., Southwestern Bell, 19 F.3d at 1482 (quoting NARUC v. FCC, 533 F.2d 601, 608 (D.C. Cir. 1976) (NARUC 11) ("[I]t is at least logical to conclude that one can be a common carrier with regard to some activities but not others")). 222 See, e.g., Vitelco v. FCC, 198 F.3d at 925-30 (affirming the Commission's grant of a submarine cable operator's application for cable landing rights as a non-common carrier); Computer and Communications Industry Assn v. FCC, 693 F.2d at 207-14 (The court stated: "In designing the Communications Act, Congress sought to endow the Commission with sufficiently elastic powers such that it could readily accommodate dynamic new developments in the field of communications. Congress thus hoped to avoid the necessity of repetitive legislation. In Computer II the Commission took full advantage of its broad powers to serve the public interest by accommodating a new development in the communications industry, the confluence of communications and data processing. Because the Commission's judgment on how the public interest is best served is entitled to substantial judicial deference, the Commission's choice of regulatory tools in Computer II must be upheld unless arbitrary or capricious. Our review of the Commission's decision convinces us that the Commission acted reasonably in defining its jurisdiction over. enhanced services and CPE. We therefore uphold the Computer II scheme.") (internal quotation marks omitted); Wold Communications, 735 F.2d at 1473-79 (affirming the decision in the Transponder Sales Order to allow sales of satellite transponder service on a non-common carrier basis); see also infra note 280.
40

Case 3:07-cv-02231-RJB

Document 10-7

Filed 01/22/2008

Page 13 of 47

Federal Communications Commission

FCC 05-150

access transmission offerings available to unaffiliated ISPs in a manner that meets ISPs' needs, but that they have business incentives to do so "' For example, Qwest offers a tariffed wireline broadband DSL service that enables hundreds of independent ISPs to serve end-user customers over Qwest's broadband facilities.224 Regardless of the outcome of this proceeding, Qwest has stated it will continue to make available a DSL offering that will enable consumers to reach unaffiliated ISPs because consumers demand the choice, and meeting that demand makes its product more attractive 225 SBC previously entered into a memorandum of understanding with a trade association representing nearly 300 members of the Internet industry, including many independent ISPs, committing to negotiate private commercial 21 arrangements with unaffiliated ISPs for broadband Internet access. Verizon has similarly indicated its intent to enter into commercially reasonable contracts with unaffiliated ISPs for broadband transmission services because it is in its best interest to do so 227 Finally, BellSouth has also evidenced a willingness, desire, and incentive to deal with unaffiliated ISPs absent a Commission requirement that compels them to do s0.228 For example, BellSouth has indicated that it will benefit financially from providing DSL transmission to independent ISPs, as it has an economic incentive to spread the costs of its network over as much traffic and as many customers as possible regardless of whether such customers are wholesale or retail. 129 75. We finds these incentives significant, and therefore disagree with the contention of some commenters that a mandatory common carrier broadband transmission requirement is essential for independent ISPs to obtain wireline broadband transmission that meets their needs at reasonable prices."' Based on the record before us, we expect that business incentives will compel wireline broadband carriers to offer broadband transmission on a commercially reasonable basis to independent ISPs and will 221 See SBC July 31, 2003 Ex Parte Letter at 8 ("SBC will continue to enter into ISP broadband access arrangements as a way of increasing subscriber growth and utilization of its broadband network regardless of any regulatory compulsion to do so."). Indeed, carriers voluntarily have entered into certain non-common carrier agreements already. E.g., Letter from Edward Shakin, Vice President and Associate General Counsel, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 02-33, at 1-2 (filed July 29, 2004) (Verizon July 29, 2004 Ex Parte Letter) (describing Verizon's Fios services, which are high-speed Internet services provided over Verizon's fiber networks); BellSouth June 5, 2003 Ex Parte Letter at 12-13 (describing BellSouth's negotiated RBAN service arrangement with EarthLink). 224 See, e.g., Qwest Apr. 10, 2003 Ex Parte Letter, Attach. at 2 (noting Qwest's "DSL+" access offering to 400 ISPs); Qwest May 23, 2003 Ex Parte Letter, Attach. at 5 (describing this service). 225 Qwest Apr. 10, 2003 Ex Parte Letter, Attach. at 2, 10. 226 See Letter from Donald E. Cain, Vice President-Federal Regulatory, SBC, & David P. McClure, USIIA, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 02-33, at 1-2 & Attach. at 2 (filed May 3, 2002) (SBC and USIIA May 3, 2002 Ex Parte Letter) (describing memorandum of understanding dated May 2, 2002). This memorandum of understanding has no expiration date. See id., Attach. at 1-2. 227 See, e.g., Verizon Comments at 31 (explaining that the significant costs to upgrade its network can be recovered through use of its network by other broadband providers.) 228 See, e.g., BellSouth June 5, 2003 Ex Parte Letter at 16-18.
221 See id.

210 See, e.g., Big Planet Comments at 16-17; EarthLink Comments at 19-20; ITAA Comments at 12-18; Ohio ISP Assoc. et al. Comments at 39-41; Earthlink et al. Streamlining Proposal at 6-7; Letter from Maura J. Colleton, The BroadNet Alliance, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 02-33, 98-10, & 95-20, Attach. at 26-29 ("The Significant Role of Online Service Providers in the Development and Success of the Information Age") (filed July 1, 2002) (BroadNet Alliance July 1, 2002 Ex Pane Letter).
41

Case 3:07-cv-02231-RJB

Document 10-7

Filed 01/22/2008

Page 14 of 47

Federal Communications Commission

FCC 05-150

motivate wireline carriers to negotiate mutually acceptable rates, terms, and conditions with unaffiliated ISPs. We strongly encourage the parties to work together to develop individual contracts that are mutually beneficial to each party. 76. We also expect that the rapid growth and development of innovative broadband service offerings, including IP telephony, among the different broadband Internet access platform providers, particularly cable modem, will provide significant incentives to facilities-based wireline carriers to increase subscriber usage of wireline-based Internet access services vis-6-vis cable modem and other platform providers of broadband Internet access services."' That is, to the extent that IP telephony services provided via other broadband platforms erode revenues that the BOCs and other incumbent LECs derive from traditional voice services, these carriers will have incentives to mitigate this potential revenue loss by retaining customers on the wireline broadband platform to the maximum extent possible."' Providing wholesale wireline broadband transmission to independent ISPs, whether through partnering, stand-alone transmission agreements, or other types of commercial service arrangements, would ensure that the facilities-based carrier derives some financial benefit from that customer. e) A Change of Course Is Justified 77. As we have noted above, the Act does not address directly how wireline broadband Internet access service should be classified or regulated 233 Through section 706, however, it does provide the Commission with a specific mandate to encourage broadband deployment, generally, and to promote and preserve a freely competitive Internet market, specifically."' Indeed, Congress mandated that the Commission encourage broadband capability "without regard to any transmission media or technology" and "remove barriers to infrastructure investment.""' 78. Because our decision necessarily relies, in part, on our predictive judgment regarding a rapidly changing, dynamic industry, we do not pretend that there is a single, clear-cut answer. 236 As with the Commission's previous decisions to adopt and then modify the Computer Inquiry requirements, the decision that we must make today - whether or not to retain the Computer Inquiry requirements in some form - at its core involves an assessment of the relative costs and benefits of the various alternatives. In making this assessment, we must consider the broadband objectives Congress established in section . 7061 17 Those objectives make clear that the Commission must encourage the deployment of advanced 231 See, e.g., Verizon June 26, 2003 Ex Parte Letter at 3 (noting that Vol? is an example of a new and emerging service that incumbent LECs will need to provide to be competitive with cable and other broadband providers). 232 See BellSouth June 5, 2003 Ex Parte Letter at 11-13. 233 See supra para. 8.
234 See supra paras. 3, 8.

231

See 47 U.S.C. § 157 nt.

236 See Wold Communications, 735 F.2d at 1475 (noting that the public interest is served if the Commission's powers remain sufficiently elastic to address dynamic developments in the communications field, especially when Congress had taken no "specific action geared to the industry"); compare Transponder Sales Order, 90 FCC 2d at 1248-49, para. 28 ("The Communications Act was adopted long before the advent of communications satellites, and therefore it nowhere mandates that domestic satellite operators be regulated as common carriers."). 237 See 47 U.S.C. § 157 nt (§ 706 of the Act). In the Fourth Section 706 Report, the Commission concluded, as it

did in the previous three section 706 reports, that the overall goal of section 706 is being met, and that advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion. In this Fourth (continued ...)
42

Case 3:07-cv-02231-RJB

Document 10-7

Filed 01/22/2008

Page 15 of 47

Federal Communications Commission

FCC 05-150

telecommunications capability to all Americans by removing barriers to infrastructure investment. The D.C. Circuit recently upheld a similar Commission balancing approach that considered section 706's goals of swift, ubiquitous broadband deployment in adopting unbundling rules for mass market next generation broadband-capable loops pursuant to section 251(c)(3) of the Act .21' Therefore, in assessing the alternative regulatory frameworks for wireline broadband Internet access services, we must ensure that the balance struck provides adequate incentives for infrastructure investment. 79. The following factors guide us toward replacing the Computer Inquiry obligations for wireline broadband Internet access service providers with a less regulatory framework: the increasing integration of innovative broadband technology into the existing wireline platform; the growth and development of entirely new broadband platforms; the flexibility to respond more rapidly and effectively to new consumer demands; and our expectation of the availability of alternative competitive broadband transmission to the currently required wireline broadband common carrier offerings. We believe our actions today will enhance each of these factors. Fostering the ubiquitous availability of broadband Internet access to all Americans across multiple competitive broadband platforms is best accomplished by recalibrating regulation where it is appropriate to do so."' Fulfilling our statutory obligations and policy objectives to maximize the acceleration of all types of broadband infrastructure deployment no longer requires a Commission-mandated wholesale wireline broadband Internet access transmission market.2411 Requiring a single type of broadband platform provider (i.e., wireline) to make available its transmission on a common carriage basis is neither necessary nor desirable to ensure that the statutory objectives are met 241 Indeed, as the evidence demonstrates, continuing this requirement would contravene these objectives. Importantly, this does not mean that we sacrifice competitive ISP choice for greater deployment of broadband facilities. Rather, as we have explained above, our reasoned judgment tells us that sufficient marketplace incentives are in place to encourage arrangements with innovative ISPs. Indeed, the incentives are growing as cable modem and wireline providers compete head-to-head with (continued from previous page)
Report, the Commission stated that to continue the further growth of broadband Internet access services, we will need to apply "[m]inimal regulation of advanced telecommunications networks and services." Fourth Section 706 Report, at 9.

231 USTA 11, 359 F.3d at 578-85;'see Triennial Review Order, 18 FCC Rcd at 17121, para. 234. Considering these 706 objectives, the Commission imposed only limited unbundling obligations on incumbent LECs' mass market next-generation broadband loop architectures, yet ensured that access to unbundled narrowband facilities was available where appropriate. Id. at 17141-54, paras. 272-97.
234 See Wold Communications, 735 F.2d at 1475 (citing FCC v. WNCN Listeners Guild, 450 U.S.. at 595 (Congress gave the Commission "sweeping authority" over rapidly unfolding enterprises); CCIA v. FCC, 693 F.2d at 212; NARUC I, 525 F.2d at 645; & Philadelphia Television Broadcasting Co. v. FCC, 359 F.2d 282 (D.C. Cir. 1966)) (public interest touchstone permits Commission to substitute marketplace for direct Commission regulation); see also NCTA v. Brand X, slip op. at 30 (affirming the Commission's "fresh analysis" of regulations in the wake of changed market conditions).

240 Our statutory obligations and policy objectives guide us in the direction that maximizes the acceleration of all types of broadband infrastructure deployment. Indeed, Congress specifically directed the Commission to encourage broadband capability "without regard to any transmission media or technology." See 47 U.S.C. § 157 nt. 241 See, e.g., Wold Communications, 735 F.2d at 1468 (citing FCC v. WNCN Listeners Guild, 450 U.S. at 595 (giving the Commission particular deference with respect to policy judgments and predictions of the direction in which the public interest lies in a "fast-moving field of technology")). Continued Computer Inquiry obligations could have a chilling impact not only on the continued deployment of wireline broadband infrastructure, but on other new and innovative technologies.
43

Case 3:07-cv-02231-RJB

Document 10-7

Filed 01/22/2008

Page 16 of 47

Federal Communications Commission

FCC 05-150

one another and other platform providers such that wireline platform providers will find it necessary and desirable to negotiate arrangements with unaffiliated ISPs for access to their broadband networks in order to grow the base of users of their broadband infrastructures. 80. Weighing all of these factors, we conclude that the elimination of our Computer Inquiry requirements for wireline broadband Internet access service providers, subject to the transitional mechanism described below, best facilitates the accomplishment of our broadband goals and objectives in light of the rapidly changing market conditions for broadband Internet access services."' We expect this new framework to enable consumers to reap the benefits of advanced wireline broadband Internet access services that incorporate the latest technologically advanced integrated equipment, on a more widely available and more timely basis than if we maintained the existing regime. 81. In taking this action, we note that some commenters argue that we must undertake a forbearance analysis pursuant to section 10 of the Act before we can remove our Computer Inquiry requirements."' We do not agree. The Commission is free to modify its,own rules at any time to take into account changed circumstances. 244 The Computer Inquiry requirements are not mandated by statute but, rather, were adopted prior to the 1996 Act in the exercise of the Commission's policy judgment. Indeed, the Supreme Court aff