exception to section 251 (c).171 According to SBC and BelISouth these prior holdings are

irrelevant, because section 251 (c) has now been "fully implemented" with respect to "broadband

services." and therefore section 1O(d) of the Act does not bar the requested forbearance. 172

Section 1O(d) simply cannot be read to permit such "service-specific" forbearance. The plain

language of that provision expressly requires "jull[} implementation" of section 251 (c) prior to

any forbearance. Moreover, in requiring "full implementation," Congress clearly contemplated

that the relevant markets would be irreversibly competitive. Otherwise, an incumbent LEC,

upon having simply done that which is otherwise required by the Act - i.e., open its markets to

competition by complying with the requirements of sections 251 (c) - could immediately demand

removal of the very regulation that permitted competition to emerge in the first instance.

Ultimately recognizing that section 1O(d) does not contain a "broadband services"

exception, the incumbent LECs shift ground and instead argue that the scope of the

Commission's forbearance authority is ultimately irrelevant because the "xDSL-based

transmission path" is not a "network element.,,173 In particular, the incumbent LECs argue that

the competitors would not be "impaired" without access to the "high frequency portion of the

copper loop" and, therefore, all existing and related section 251 (c) obligations - e.g., "spectrum

unbundling," "loop qualification," "loop conditioning," "collocation," and "discounted resale" -

(. .. continued)incumbent LEC advanced services facilities. See Section 706 Order, 13 FCC Red. 24011 (~~ 75,69).

171 See Association oj Communications Enterprises v. FCC, No. 99-1441, slip op. at 11 (D.C.Cir. Jan. 9,2001).

172 SBCIBelISouth at 41-42.

173 SBCIBellSouth at 19-20; Verizon at 28.

47

must be lifted. 174 The Commission has already addressed - and rejected - these arguments in its

Line Sharing Order. 175 In short, the incumbent LECs' wholesale attack on the many

Commission decisions implementing the regulation mandated by Congress are barred by the

plain terms of the Act, and, in any event, well beyond the scope of this proceeding.

In sum, there is simply no legal or economic basis for the incumbent LECs' regulatory

parity claims. Cable operators face intense competition in their core video programming market.

DBS providers have the ability and capacity to serve virtually every consumer in the United

States. Over 20 percent of U.S. subscribers already buy video programming services from some

174 SBCIBellSouth at 18-22; Verizon at 27-28. The incumbent LECs also make the thresholdargument that "Section 251(c)(3) requires [only] unbundling of 'network elements,' which thestatute defines as 'facilit[ies] used in the provision of a telecommunications service. If an ILECdoes not opt to offer its xDSL-enabled transmission path as a 'telecommunications service' at all,that portion of the loop cannot be treated as a 'telecommunications service. '" SBCIBellSouth at20. The fundamental flaw in this argument is that it presumes that section 251 (c)(3)' sunbundling requirement turns upon what services the incumbent LEC is providing over itsnetwork. That is wrong. The definition requires unbundling to permit a requesting any carrier toprovide any "telecommunications service," not just the services provided by the incumbent LEe.As the Commission has recognized, "[w]hen interexchange carriers purchase unbundledelements from incumbents, they are not purchasing exchange access 'services.' They arepurchasing a different product, and that product is the right to exclusive access or use of an entireelement." First Report and Order, Implementation of the Local Competition Provisions of theTelecommunications Act of 1996, 11 FCC Rcd. 15499, 15680 (~ 358) (1996). See also id. at15634 (~ 264) ("network elements are defined by facilities or their functionalities or capabilities,and thus, cannot be defined as specific services."). And it is precisely for these reasons that theCommission has held that "the facilities and equipment used by incumbent LECs to provideadvanced services are network elements and subject to the obligations in section 251(c)(3)."Section 706 Order, 13 FCC Rcd. at 240 17 (~ 11).

175 Third Report and Order, Deployment of Wireline Services Offering AdvancedTelecommunications Capability, 14 FCC Red. 20912, 20926 (~ 25) (1999) ("lack of access to thehigh frequency portion of the local loop would materially raise competitive LEes' cost ofproviding xDSL-based services to residential and small business users, delaying broad facilities­based market entry, and materially limiting the scope and quality of competitors' serviceofferings"). Indeed, in that order, the Commission reaffirmed that it will not consider ad hocpetitions to "de-UNE-fy" network elements, but instead will comprehensively reevaluate the listof network elements every three years. Id. at 20942 (~ 61).

48

company other than the local cable operator and four out of every five new customers are now

h · hI' 'd 176C oosmg suc a ternatlve proVl ers.

In stark contrast, incumbent LECs continue to control virtually all residential and

business local voice lines l77 And while a few competitive LECs have gained a toe-hold by

serving niche markets, most competitive LECs have become "marginalized" because they do not

"own the strategic assets" necessary to compete but must "rely on the ubiquitous Bell network" -

a network that remains largely closed to new entrants. I78 "[I]nvestors [have] los[t] confidence in

the fundamentals of the CLEC business model,,,179 "there has been 'carnage' among CLEC

stocks," 180 and numerous competitive LECs have filed (or are on the verge of filing) for

bankruptcy. 181 Until incumbent LECs face the level of competition to which cable operators are

176 See generally Seventh Annual Report, Annual Assessment o/the Status o/Competition in theMarket/or the Delivery o/Video Programming, CS Docket No. 00-132 (Jan. 8,2001).

177 See generally Telephone Subscribership in the United States (Dec. 11,2000).

178 Janet Whitman, New Entrants: Battling the Bells, Wall Street Journal, at R17 (Sept. 18,2000). See also Brian Ploskina, It's Open Season For CLEC Consolidators, Interactive Week(Oct. 11, 2000) (reporting that competitive local exchange carriers are "facing hard times"because they are forced to rely "on incumbent carriers").

179 Mike Farrell, ICG Tanks, Depressing Other CLECs, Multichannel News (Oct. 2,2000).

180 John T. Mulqueen, ICG Hit Hard by Revenue Shorifall, Resignations, Interactive Week (Oct.8, 2000). See also id ("Another piece of the crumbling new carrier industry has plummeted tothe ground").

lSI Paul Sherer, Deals & Deal Makers: Too Much Telecom, Wall Street Journal, at C1 (Aug. 15,2000) ("[T]he telecom landscape is littered with troubled firms."); Jeff St.Onge, AmerMetroComm Asks to Abandon Cisco Gear It Calls Faulty, Dow Jones News Service (Oct. 10,2000) (reporting on Aug. 23 Chapter 11 filing and ongoing bankruptcy proceedings); Jeff St.Onge, A Bankruptcy Boom Is Starting To Have Ripple Effects, Dow Jones News Service (Oct. 5,2000) ("[I]n just the past few months, dozens of [ISPs] and telecom start-ups have filed forbankruptcy"); Heather Draper, ICG's Tumble A Wake-Up Call to Telecom Firms, Denver RockyMountain News, at 1G (Sept. 24, 2000) ("Certainly, ICG is at risk of bankruptcy and otherCLECs will be in the same boat"); John T. Mulqueen, Carrier's Purchasing Plans In Question,Interactive Week (Oct. 1, 2000) ("Several [securities analysts] noted that some competitive local

(continued . . .)

49

currently subject, it is simply premature to entertain notions of regulatory parity. There is a

world of difference between, on the one hand, video and Internet businesses in which new

entrants have in a few short years captured more than 20 percent of the customers and continue

to grow much faster than the incumbent cable operators, and, on the other hand, local telephone

markets in which, more than five years after the Act, incumbents continue to serve nearly 97

percent of the residential and small business customers and most new entrants now appear likely

to abandon the field altogether.

(. . . continued)exchange carriers were not meeting revenue projections, some had gone bankrupt and that thecapital markets, especially junk bonds, were closed to new carriers. "); Darwin Claims AnotherCLEC, Communications Today (Oct. 4, 2000) ("Nettel is just the latest telecom casualty in thedog-eat-dog CLEC arena."); Janet Whitman, McLeodUSA's CapRock Buy May Mark NewConsolidation Round, Dow Jones News Service (Oct. 3, 2000) ("Troubled CLECs that don'tmanage to secure additional funding" are "likely to face bankruptcy" unless they can find abuyer).

50

CONCLUSION

For the foregoing reasons, the Commission should confirm that existing cable Internet

services are "cable services" and "information services," but not "telecommunications services,"

and the Commission should maintain its existing policy of "vigilant restraint," relying on

marketplace forces rather than unnecessary access regulation.

David W. CarpenterPeter D. KeislerDavid L. LawsonC. Frederick Beckner IIISidley & Austin1722 Eye Street, N.W.Washington, D.C. 20006

Howard 1. SymonsThomas G. KrattenmakerJames 1. ValentinoMichelle M. MundtCatherine CarrollMintz, Levin, Cohn, Ferris,

Glovsky and Popeo, P.C.701 Pennsylvania Avenue, N.W.Suite 900Washington, D.C. 20004

January 10, 2001

51

1Yt/p-- C ~~~Mark C. RosenblumStephen C. GaravitoDouglas GarrettAT&T Corp.295 N. Maple AvenueBasking Ridge, New Jersey 07920(908) 221-8100

Michael H. HammerFrancis M. BuonoJonathan A. FriedmanWillkie Farr & GallagherThree Lafayette Centre1155 21 st Street, N.W.Suite 600Washington, D.C. 20036-3384

CERTIFICATE OF SERVICE

I hereby certify that on this 10th day of January, 2001, I caused true and correct

copies of the forgoing Reply Comments of AT&T Corp. to be served on all parties by mailing,

postage prepaid to their addresses listed on the attached service list.

Dated: January 10, 2001Washington, D. C.

Vv#1-1p~ ~... /Y Patricia ~IlYasi

Magalie Roman SalasSecretaryFederal Communications Commission445 12th Street, S. W.Washington, D.C. 20554

Christopher LibertelliCommon Carrier Bureau445 12th Street, SW, Room 5-C264Washington, D.C. 20554

Douglas SickerOffice of Engineering and Technology445 12th Street, SW, Room 7-A325Washington, D.C. 20554

Janice MylesCommon Carrier Bureau445 12th Street, SW, Room 5-C327Washington, D.C. 20554

Christopher C. CinnamonBienstock & Claek307 North Michigan AvenueSuite 1020Chicago, Illinois 60601

Pace DuckenfieldAlliance for Public Technology919 18th Street, NWSuite 900Washington, DC 20016

SERVICE LIST

Johanna MikesCommon Carrier Bureau445 12th Street, SW, Room 5-C163Washington, D.C. 20554

Carl KandutschCable Services Bureau445 12th Street, SW, Room 3-A832Washington, D.C. 20554

Robert CannonOffice ofPlans & Policy445 12th Street, SW, Room 7-B41OWashington, D.C. 20554

Mathew M. PolkaPresidentAmerican Cable AssociationOne Parkway CenterSuite 212Pittsburgh, Pennsylvania 15220

William T. ArcheyAeA601 Pennsylvania Avenue, N.W.Suite 600Washington, DC 20004

Macy HallockAPK Net, Inc.1621 Euclid Ave.Suite 1230Cleveland, Ohio 44115

Marilyn Mohrman-GillisAssociation of America's Public TelevisionStations1350 Connecticut Avenue, NWWashington, DC 20036

Ellen P. GoodmanCovington & Burlington1201 Pennsylvania Avenue, NWWashington, DC 20004-2401

Jonathan ZuckAssociation for Competitive Technology1225 Eye Street, NWSuite 500Washington, DC 20005

Jim PrickrellBrand X Internet927 6th StreetSanta Monica, CA 90403

Howard SymonsMintz, Levin, Cohn, Ferris,

Glovsky & Popeo, P.e.701 Pennsylvania Avenue, NWSuite 900Washington, DC 20004

Carolina Online Surfshop705-A Wesley Pines Rd.Lumberton, NC 28358

Rick KunzeColusaNet1041 Main StreetColusa, CA 95932

2

Victor TawilAssociation for Maximum Service Television1776 Massachusetts Avenue, N.W.Suite 130Washington, D.e. 20036

Charles C. HunterHunter Communications Law Group1620 I Street, N.W.Suite 701Washington, DC 20006

Larry BinucciBig Planet, Inc75 West Center StreetProvo, Utah 84601

Cathy SlesingerCable & Wireless USA, Inc.8219 Leesburg PikeVienna, VA 22182

Francois D. Menard402 2nd AvenueVerdun QC H4G 2W5Canada

Richard R. CameronLatham & Watkins1001 Pennsylvania Avenue, NWWashington, DC 20004

Thomas R. NatahnComcast Cable Communications, Inc1500 Market StreetPhiladelphia, PA 19102

Jason M. ThomasCitizens for a Sound Economy Foundation1250 H Street, NWSuite 700Washington, DC 20005

Jerry BermanCenter for Democracy & Technology1634 Eye Street NWSuite 1100Washington, DC 20006

Frank 1. UddoUddo & Milazzo3850 N. Causeway BoulevardSuite 1510- Lakeway TwoMetairie, Louisiana 70002

James L. CasserlyMintz, Levin, Cohn, Ferris,

Glovsky & Popeo, P.C.701 Pennsylvania Avenue, NWSuite 900Washington, DC 20004

Ronald 1. BinzCompetition Policy Institute1156 15th Street, NWSuite 520Washington, DC 20005

W. Dennis CrossMorrison & Hecker LLP2600 Grand AvenueKansas City, Missouri 64108-4606

3

Michael F. AltschulCellular Telecommunications IndustryAssociation1250 Connecticut Avenue, NWSuite 800Washington, DC 20036

Alan McColloughCircuit City Stores, Inc.9950 Mayland DriveRichmond, VA 23233

William D. Aaron, JRGoins Aaron, PLC1010 Common StreetSuite 2600New Orleans, Louisiana 70112

Ronald L. PlesserPiper Marbury Rudnick & Wolfe LLPSeventh Floor1200 Nineteenth Street, NWWashington, DC 20036

Harvey L. ReiterMorrison & Hecker LLP1150 18th Street, NWSuite 800Washington, DC 20036-3816

Michael 1. TraviesoNASUCA TelecommunicationsWilliam Donald Schaefer Tower6 Saint Paul Street, Suite 2102Baltimore, Maryland 21202

Walker HendrixConsumer CounselCitizen Utility Ratepayer Board ofKansas1500 SW Arrowhead RoadTopeka, Kansas 66604

Robert J. AamothKelley Drye & Warren LLP1200 19th Street, NWSuite 500Washington, DC 20036

Cheryl A. LeanzaMedia Access Project950 18th Street, NWSuite 220Washington, DC 20006

Alexander V. NetchvolodoffCox Enterprises, Inc.1125 19th Street, NWSuite 450Washington, DC 20036

Ronald B. YokubaitisDatafoundry.Net Inc.823 Congress Avenuesuite 500Austin, TX 78701

Dave BakerEarthlink. Inc1430 West Peachtree StreetSuite 400Atlanta, GA 30309

4

Carol Ann BischoffCompetitive Telecommunications Association1900 M Street, NWSuite 800Washington, DC 20036

Debbie GoldmanCommunications Workers ofAmerica501 Third Street, NWWashington, DC 20001

Faisal ImtiazComputer Office Solutions4713 SW 7200 AvenueMiami, Florida 33155

Barbara EsbinDow, Lohnes & Albertson, PLLC1200 New Hampshire Avenue, NWSuite 800Washington, DC 20036

Earl W. ComstockSher & Blackwell1850 M Street, NWSuite 900Washington, DC 20036

Rhonda Rivens BoltonCounsel for Echostar1330 Connecticut Avenue, NWWashington, DC 20036-1795

Jon EnglundExcite@Home Corporation450 BroadwayRedwood City, CA 94083

A. Richard Metzger, Jr.Lawler, Metzger & Milkman, LLC1909 K Street, NWSuite 820Washington, DC 20006

Carole TullosGlobal Network Access, Inc.2505 N. Mayfair Rd.Suite 222Wauwatosa, WI 53226

David B. KopelThe Heartland Institute19 South LaSalleSuite 903Chicago, Illinois 60603

Jeffrey R. CalhounInfohban OutfittersPO Box 248211E. JacksonMacomb, IL 61455

Rich MonossonInstant Internet Corporation6355 Topanga Canyon Blvd.,Suite 513Woodland Hills, CA 91367-2109

5

Ruth MilkmanLawler, Metzger & Milkman, LLC1909 K Street, NWSuite 820Washington, DC 20006

Richard C. RowelsonGemeni Networks, Inc.280 Trumbull Street, 24th FloorHartford. CT 06103-3585

Robert FlorioHamptons OnlinePOBox 29939 Windmill LaneSouthampton, NY 11969

Gary EIfertInfinetivityThe Portland Corporate Center12400 Portland Avenue SouthSuite 135Burnsville, Minnesota 55337-6817

Mathew J. TanielianInformation Technology Industry Council1250 Eye Street, NWSuite 200Washington, DC 20005

Chuck Stevens, Sr.An Internet Services CompanyPO Box 471765Charlotte, NC 28247

Ms. Yuka NagashimaLava. Net73 3 Bishop Street, # 1170Honolulu, Hawaii 96813

Gregory W. StepanicichRichards, Watson & Gershon44 Montgomery StreetSuite 960San Francisco, CA 94104

Scott BlankPegasus Communications Corporation225 City Line Ave.Suite 200Bala Cynwyd, PA 19004

Henry M. RiveraShook, Hardy & Bacon, LLP600 14th Street, NWWashington, DC 20005-2004

Eric MontarriAllegheny Institute for Public Policy835 Western AvenuePittsburgh, PA 15233

Nicholas P. MillerMiller & Van Eaton, PLLClIS5 Connecticut Ave. # I000Washington, DC 20036-4306

Keith HouskeNetworld Online1243 Napoleon St.Fremont, OH 43420

6

James K. HahnCity ofLos Angeles200 North Main StreetRoom 1800, City Hall EastLos Angeles, CA 90012

Andrew Jay SchwartzmanMedia Access ProjectSuite 220950 18th Street, NWWashington, DC 20006

Wendy L. GrammRegulatory Studies Program3401 North Fairfax DriveSuite 450Arlington, VA 22201-4433

Kelvin R. WestbrookMillennium Digital Media, Inc120 South Central-Suite 150St. Louis, MO 63105

David 1. SweetlandNaisp.Net211 Landry AvenueNorth Attleborough, MA 02760-3501

Kenneth S. FellmanKissinger & Fellman, PCPtarmigan PlaceSuite 9003773 Cherry Creek NorthDenver, CO 80209

John LeslieNew Hampshire ISP AssociationPO Box 341Londonderry, New Hampshire 03053

Daniel L. BrennerNational Cable Television Association1724 Massachusetts Avenue, NWWashington, DC 20554

Jonathan A. NowaczekNetalliance, Inc6009 Wayzata Blvd.,Suite 103Minneapolis, MN 55416-1623

John G. Colannino36 Beach RoadPO Box 5Monmouth Beach, New Jersey 07750

Mary E. YokosePortOne Internet, Inc.160 Chapel RoadManchester, CT 06040

Walter L. Conner, Jf.Questar Network Services, LLC5900 Mosteller DriveSuite 1524Oklahoma City, OK 73112-4641

Kathy L. CooperSwidler, Berlin, ShereffFriedman3000 K Street, NWSuite 300Washington, DC 20007-5116

Lewis BergmanTexas Communications4309 Maple StreetAbilene, TX 79602

7

Tillman L. LayMiller, Canfield, Paddock and Stone, PLC1900 K Street, NWSuite 1150Washington, DC 20006

Julia 1. JohnsonNet Compete NowPO Box 1431718 M Street, NWWashington, DC 20077-5782

Stuart PolikoffOPASTCO21 Dupont Circle, NWSuite 700Washington, DC 20036

Jeffrey A. Eisenach, Ph.D.The Progress & Freedom Foundation1301 K Street, NWSuite 550EWashington, DC 20005

Robert B. McKennaQwest Communications International Inc.1020 19th Street, NWSuite 700Washington, DC 20036

Gerry CuninghamA+ Net Internet/Rodopi Software4660 La Jolla Village DriveSuite 880San Diego, CA 92122

Mathew 1. Flanigan1300 Pennsylvania Ave.,NWSuite 350Washington, DC 20004

Prestorn KornSafe AccessPO Box 2757Flagstaff, AZ 86003

Lori FinkSBC Communications, Inc.1401 I Street, NWSuite 1100Washington, DC 20005

Andrew R. PaulSBCA/SIA Satellite Broadband & InternetDivision225 Reinekers LaneSuite 600Alexandria, VA 22314

Norman P. LeventhalLeventhal, Senter & Lerman, PLLC2000 K Street, NWSuite 600Washington, DC 20006

Rick KosickStarlinx606 Corporate DriveLanghorne, PA 19047

Jerry A. HillWestPA.net104 Liberty St.Warren, PA 16365

8

Michael K. KelloggKellogg, Huber, Hansen, Todd & Evans, PLLCSumner Square1615 M Street, NWSuite 400Washington, DC 20036

Richard M. SbarattaBellsouth Corporation4300 BellSouth Center675 West Peachtree Street, NEAtlanta, GA 30375

Scott WiersumSmartgate Corporation120 North York RoadSuite 205Elmhurst, IL 60126

Shawn McGaryStargate.net, Inc.The Crane Building40 24th Street, Suite 300Pittsburgh, PA 15222

Frank RodrigueSunrise Internet Services32775 State Highway 18PO Box 2047Lucerne Valley, CA 92356

Mark D. SchneiderJenner & Block60 I Thirteenth Street, NWWashington, DC 20005

Rick GuzmanTexas Office ofPublic Utility Counsel1701 N. Congress Avenue, Suite 9-180Austin, TX 78701

David 1. Gilman Jr.Town of Southampton116 Hampton RoadSouthampton, NY 11968

David P. McClureUS Internet IndustryAssociation1901 North Ft. Myer DriveSuite 450Arlington, VA 22209

Lawrence E,. SaIjeantUnited States Telecom Association1401 H Street, NWSuite 600Washington, DC 20005-2164

Michael E. GloverVerizon Communications1320 Courthouse RoadArlington, VA 22209

Richard S. WhittWorldcom, Inc.1801 Pennsylvania Avenue, NWWashington, DC 20006

Alex PhillipsWorld Wide Communications, LLC66 East Market StreetHarrisonburg, VA 22801

9

Eric BregmanTown ofEast Hampton159 Pantigo RoadEast Hampton, NY 11937

James H. NorwoodSpiegel & McDiarmid1350 New York Avenue, NWWashington, DC 20005

Martin MachowskyiAdvance919 18th Street, NWWashington, DC 20006

Hugh Carter DonahueAnnenberg Public Policy Center at theUniversity ofPennsylvania3620 Walnut StreetPhiladelphia, PA 19104

John P. FrantzVerizon Communications1850 M Street, NWWashington, DC 20036

C. Robert RoseWorldnet Communications116 S Third StreetPO Box 256Leesville, LA 71496

ITS445 12th Street, SW, CY-B402Washington, D.C. 20554

1-

A

Before theFEDERAL COMMUNICATIONS COMMISSION

Washington, DC 20554

In the Matter of:

Inquiry Concerning High-SpeedAccess to the Internet OverCable and Other Facilities

)))))

GN Docket No. 00-185

REPLY DECLARATION OFJANUSZ A. ORDOVER AND ROBERT D. WILLIG

I. QUALIFICATIONS

A. Janusz A. Ordover

1. My name is Janusz A. Ordover. I am Professor ofEconomics and Director of the

MA Program at New York University, which I joined in 1973. My qualifications for submitting

this Reply Declaration are detailed in the declaration that accompanies AT&T Corp.'s ("AT&T")

initial comments in this proceeding.

B. Robert D. Willig

2. My name is Robert D. Willig. I am Professor ofEconomics and Public Mfairs at

the Woodrow Wilson School and the Economics Department of Princeton University. My

qualifications for submitting this Reply Declaration are also detailed in the declaration that

accompanies AT&T's initial comments in this proceeding.

D. SUMMARY OF MAIN CONCLUSIONS

3. We have prepared this Reply Declaration at the request of AT&T to articulate our

reactions to the arguments made by various parties in the initial comments in this proceeding.

4. As we explained in our initial declaration, proponents of government-mandated

access to the cable modem platform must bear the burden of proving that the cable modem

platform is a bottleneck monopoly in a relevant market, that there is a substantial risk of a

bottleneck monopoly abuse, and that the proposed regulation standards will actually make

consumers better off The proponents of forced access have demonstrated none of these.

5. To the contrary, the record evidence makes clear that there is no basis for

imposing access requirements on cable operators. As we show in Section III:

• The record evidence demonstrates that cable Internet service providers like AT&Thave no bottleneck monopoly in a putative "broadband access service market"; rather,they are vigorously competing for subscribers with numerous companies usingdifferent product technologies and different business models -- both broadband andnarrowband -- to attract and retain subscribers;

• Cable operators like AT&T currently do not have the ability anticompetitively toleverage their position as providers of cable services and thereby lessen competitionin the provision of broadband Internet services to the detriment of consumers; and

• The costs of imposing forced access regulation upon the providers of cable modemservic, :ar outweigh any purported benefits of doing so. These burdens include thecosts of supervision of access technology, access prices, and access business plans, allof which would need to be constantly revised to reflect the dynamic and continuouslychanging conditions in the broadband Internet services business. Even more harmfulwould be the resulting impediments to desirable and necessary entrepreneurshiparising from the regulatory process and the opportunities it affords to competitors toslow their rivals.

6. Incumbent local exchange carriers ("LECs") argue that the nature of broadband

Internet access services justifies the deregulation of their broadband offerings or, in the name of

regulatory parity, the imposition of forced access regulation upon cable modem services. As we

show in Section IV, these arguments either ignore or assume away the unique competitive

concerns that arise from the incumbent LECs' ownership of bottleneck facilities (particularly the

local loop) that plainly necessitate for the public interest the continued imposition of the

interconnection and unbundling statutory framework adopted by Congress for ILECs in 1996.

2

Such competitive concerns do not arise from the positions of cable, satellite, and wireless

providers of high-speed Internet access services.

7. In Section V, we respond to commenters who seek to have the Commission exert

sweeping authority over the Internet. In particular, we explain that the competition from digital

subscriber line ("DSL") services, other broadband technologies, and continually from dial-up

services generate powerful economic incentives for cable operators to offer cable modem

services' customers desirable choices with respect to access to Internet service providers

("ISPs") and to content, subject to applicable technological constraints.

III. THE COMMENTS REINFORCE OUR CONCLUSION THAT FORCED ACCESSREGULATION OF CABLE MODEM SERVICES IS CURRENTLYUNNECESSARY

8. As we explained in our initial declaration, access regulation should be confined to

a bottleneck monopoly: (1) that is an essential facility in a relevant market; and (2) whose owner

has incentives anticompetitively to abuse its monopoly power. l Proponents of forced access

regulation of cable modem services must bear the burden of proving that there is a substantial

risk of a bottleneck monopoly abuse and that the proposed regulation standards will actually

make consumers better off 2 Forced access proponents have failed to demonstrate that any such

monopoly power or bottleneck monopoly abuse exists to warrant access regulation of cable

modem services provided by cable operators like AT&T.

See Declaration of Janusz A. Ordover and Robert D. Willig,m 11, 14-24 ("OrdoverlWilligDecl.").

2 Id. Of course, proponents of forced access by government fiat must also demonstrate a legalbasis for regulation.

3

A. The Commenters Have Not Demonstrated That the Economic ConditionsNecessary to Warrant Forced Access Regulation of Cable Modem ServicesAre Present at This Time.

9. Commenters overwhelmingly agree with our conclusion3 that there is robust

competition in the provision of broadband Internet services. Not only cable commenters, but

parties representing the telephone, satellite and ISP industries, such as the United States Telecom

Association ("USTA"), the Satellite Broadcasting and Communications Assoc. ("SBCA"), the

Commercial Internet Exchange Assoc. ("CDC), and StarBand Communications (an

EchoStarlMicrosoft funded venture which offers two-way high-speed consumer satellite service),

also submitted evidence that indicates that the broadband service area is extremely competitive. 4

10. Even the incumbent LECs have conceded, as they must, the competitiveness of

the broadband Internet services business. 5 They acknowledge that "for broadband Internet

services, there is no bottleneck" and that new technologies -- "fixed wireless in particular, and

satellite" -- are emerging rapidly. 6 The record evidence presented by AT&T and other

commenters generally points to highly fluid and competitive markets and, therefore, strongly

suggests that cable operators do not have, and are unlikely to have, market power over such

servIces.

11. A handful of industry participants ignore this evidence and assert a lack of

competition in the provisioning of broadband Internet services. 7 For instance, WorldCom argues

3 See OrdoverlWillig Decl., Attachment.

4 See USTA at 1,6; SBCA at 3, 4-6; CIX at 7-8; StarBand at 6-7, 12-13; see also UtilicomNetworks ("Utilicom") at 2-3 (asserting that the broadband Internet access service arena iscompetitive with numerous providers of high-speed Internet access); Information TechnologyIndustry Council ("ITI") at 6; Competitive Policy Institute at 3, 6-7.

5 See, e.g., SBClBell South at 1-2,5-6 (stating that cable's current share of broadband Internetaccess service customers will erode quickly as other alternatives begin to emerge); Qwest at 7-8("customers view DSL services and cable modem service as being interchangeable").6 SBClBeliSouth at 1,2,4-5, 11.

7 Although this reply declaration is responsive to claims regarding the competitive nature ofbroadband Internet access services, we continue to conclude that narrowband providers will

4

that forced access regulation of cable modem services is necessary because cable operators are

the dominant "bottleneck" providers of broadband Internet services. 8 As primary support for its

claims, however, WorldCom uses data that are simply not appropriate for assessing the degree of

competition in any hypothetical broadband "market." The data relied upon by WorldCom are

simply outdated and do not provide the currently true picture of competition that exists among

various broadband technologies. In particular, WorldCom relies heavily on data from "the end

of 1999"9 while other commenters rely on data that are equally stale. 10 These data understate the

deployment ofDSL services, which has experienced a 386 percent growth rate in the past year,

causing one analyst to comment that: "[t]he proliferation ofDSL in the telecom industry has

seen one of the fastest technology adoption rates ever recorded.,,11 In addition, WorldCom's data

do not properly account for the deployment of fixed wireless and two-way broadband satellite

Internet services, which are beginning to accelerate significantly. 12 Given these rapid changes in

the competitive landscape, it is clear that the market share statistics cited by WorldCom and

others bear little relation to the present, and imminent, competitive conditions.

compete vigorously with broadband providers for Internet access subscribers for the foreseeablefuture. See, e.g., OrdoverlWillig Decl. ~~ 21-22.

8 WorldCom at 2; see also EchoStar at 6, 7; Competitive Access Coalition at 24-26; OpenNetCoalition ("OpenNet") at 5; The National League of Cities at 28,32. Of course, we dispute thecore assumptions of WorldCom's argument. WorldCom simply "assumes" that the relevantmarket is residential cable modem service and that cable operators have a dominant "bottleneck"monopoly in the broadband access service "market." WorldCom thus assumes what it needs toprove in order to make its argument and cannot demonstrate based on logic and fact.

9 WorldCom at 3-4.

10 See, e.g., USTA at 6-7; AeA at 3.

II Next Generation Networks, DSL Market: Demand Doesn't Seem To Be An Issue, ButCarrier Deployment Execution Does, Robertson Stephens (Jan. 200 I) (indicating that the totalinstalled based ofDSL has grown from 438,000 in 1999 to over 2,100,000 at the end of2000).See also OrdoverlWillig Ded., Attachment at ~ 4.

12 See Second 706 Report ~~ 201 n.289, 202 (predicting that fixed wireless high-speed servicesand satellite high-speed markets are likely to seize a sizable portion of the market); see alsoGartner Group, Inc., The Residential BroadbandRevolution: Finally, at 9, Table 2 (Aug. 14,2000).

5

12. With an argument similar to WorldCom's, Verizon Communications ("Verizon")

attempts to claim that cable is the dominant provider ofInternet broadband services by noting

that certain technical "limitations" impede the ILECs' ability to compete with cable modem

services. 13 Verizon' s complaints about the inferiority of DSL, however, are flatly contradicted

by Verizon's recent public statements touting its DSL services, 14 including the statements of

Verizon's President and CO-CEO, Ivan Seidenberg:

Well, cable modems are ahead now. Most estimates would suggest by the end ofnext year that there will be something like ... 5 million cable modems and there areprobably in the vicinity of3 million DSL customers. What's happening now withthe accelerated roll-out of companies like us, SBC, the analysts now project bythe end of2002 we'll have more DSL customers out there than the cablecompanies will have modems. 15

13. Although DSL services will not be universally available overnight -- nor will

cable modem services -- there can be no dispute that DSL is being rapidly deployed by

incumbent LECs today at levels that continue to be comparable to the pace of deployment of

cable modem services. 16 Indeed, many of the so-called "limitations" impeding DSL deployment

13 Verizon at 1,4-6.

14 See, e.g., Verizon Press Release Verizon Announces Strong Operating Results/or FourthQuarter and 2000, (Jan. 8,2001) (indicating that Verizon is "executing extremely well" in the"growth markets of the future", including DSL, where Verizon ended the year with an estimated540,000 subscribers, substantially exceeding its year-end target); Verizon Press Release, VerizonPosts Strong Third Quarter Revenue Growth on Sustained Demandfor High-Growth Services,(Oct. 30, 2000) ("Verizon ended the [third] quarter [2000] with more than 1,770 central officesequipped for DSL and nearly 60 percent of Verizon' s access lines qualified for the service.Verizon is also increasing DSL capacity in currently equipped offices to meet the strong demandfor the service"); Verizon Press Release, Verizon Online Takes its Show on the Road, (Oct. 19,2000) ("The demand for broadband capability at home is growing like never before ....Verizon Online DSL is giving users the speed they need at a price they can afford. Seeing isbelieving").

15 Ivan Seidenberg, Speech at the National Press Club Luncheon (Sept. 25, 2000).

16 See, e.g., OrdoverlWillig Decl., Attachment ~~ 2-13. Moreover, the fact that DSL is notuniversally available is competitively significant only if one believes that AT&T couldeffectively discriminate against those customers who do not yet have a broadband alternativefor example, by imposing content restrictions or establishing higher prices applicable only tohomes that are not DSL-capable. We understand that AT&T has not adopted such a practice,and no one has made a compelling argument that it can or will do so.

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have been, and continue to be, overcome by additional ILEC investment in network upgrades.

For example, last year, SBC announced that DSL will be available to 80 percent of its customers,

or 77 million customers, by 2002. 17 Moreover, unlike cable modem services, which require a

system-by-system upgrade of the architecture, DSL service can be deployed by the ILECs to

over 70 percent of their voice customers on a line-at-a-time basis with relatively little

investment. 18 Thus, even assuming that these limitations on DSL deployment are permanent,

which they are not, DSL will be sufficiently available and will have a large enough customer

base to constrain any imagined anticompetitive behavior by cable operators.

14. Finally, some proponents of forced access regulation claim that cable providers

like AT&T can wield significant market power as a result of two related phenomena­

"consumer lock-in" and "network effects.,,19 The "lock-in" phenomenon refers to a situation

where consumers fit}d it costly or difficult to switch to a competing product. "Network effects"

refers to a situation where the value to the consumer of a particular product increases as the

number of others using it grows. When network effects are strong, the most popular product

may become pre-eminent, and new products may find it more difficult to get a significant

foothold in the marketplace.

15. There is, however, no evidence that suggests that the provision of cable modem

services is characterized by either lock-in or network effects that are so significant as to impede

competition. As we pointed out in our initial declaration, DSL sales are growing at an explosive

rate?O These growth figures are totally inconsistent with the notion that DSL providers are

17 See Chris Rugaber, SBC Takes the Lead in DSL, The Motley Fool, athttp://www.fool.com/news/2000/sbc000807.htm (Aug. 7,2000); see also Stephanie N. Mehta,Why the Biggest Baby Bell Is Wild About Broadband, Fortune (Jun. 12, 2000). As ofDecember19,2000, SBC reported that it had already deployed 18 million DSL-capable customer locations.See SBC Communications Inc., Investor Briefing (Dec. 19, 2001).

18 See OrdoverlWillig Decl. 1f1f 40-41.

19 See City ofLos Angeles at 17-18; Competitive Policy Institute at 8.20 OrdoverlWillig Decl. Attachment 1f 2.

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having difficulty attracting new customers because of network effects - i.e., because cable

modem service got off to a faster start and has a larger installed base. In any event, as a matter

of logic, there is no reason to believe that the phenomenon of network effects applies to cable

modem services. A consumer of cable modem services is not benefited by the decision of

another consumer to use a cable modem for his or her Internet access, even if the first consumer

were benefited by the second deciding to become a user of the Internet in general, or even a user

of the Internet with another form of broadband access. Thus, while there are likely strong

demand-side network effects pertaining to the use of the Internet, there is no reason to think that

these are "localized" to cable modem access.

16. Nor is there any lock-in effect associated with cable modem services. AT&T's

cable modem customers are not "locked in" when they choose to buy cable-based service from -

AT&T. AT&T's cable modem customers pay only monthly charges pursuant to short-term

contracts and thus are free to switch providers quickly and cheaply. Moreover, we understand

that AT&T's cable modem service customers have the option ofleasing cable modems from

AT&T, in which case the leased modem rate is generally included in the monthly subscriber

charges that customers pay. Even if cable modem service customers choose to buy, rather than

lease, DSL providers appear willing to pay for the lost investment in the modem in order to

induce a customer to switch providers. 21 Thus, switching from cable modem service to service

via satellite or DSL involves virtually no additional investment by the customer.

17. At this time, we see no reason for the Commission to depart from its conclusion in

the First 706 Report that the "preconditions for monopoly appear absent. ,,22 If anything, the

passage of time since the First 706 Report has reinforced the soundness of the Commission's

21 Cable modems are now commercially available. See Andrea Figler, DBS, Modem NotSanta's Bag, Cable World, Jan. 8,2001 (stating that cable modems "made a presence in retailstores for the first time last year ..."). DSL subscribers may also purchase their modems, evenstand-alone self-installation kits, from commercially available sources.22 First 706 Report ~ 48.

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