Future

2004 Update:

Links to the Future

The Role of Information and Telecommunications

Technology in Appalachian Economic Development

By Michael Oden and Sharon Strover

With Nobuya Inagaki and Chris Lucas

University of Texas

Prepared for the Appalachian Regional Commission June 2004

A. Introduction: Updates of Data and Policy Analysis of Links to the Future

This study updates parts of the analysis found in the Links to the Future report published in June 2002. This update focuses on analyzing the changes in access to advanced information technologies and telecommunications services over the 2001-2003 period. We also review changes in the policy environment that have occurred over this period and highlight federal and state level legislative proposals that may have important implications for future deployment of advanced information and telecommunications infrastructure (ICT) services.

To better understand patterns of growth and change affecting ICT infrastructure in the Appalachian region, this report updates key measures of access an d use of ICT across the region. The most current data available is used to update key telecommunications infrastructure measures in the tables, figures and maps from the Links to the Future report of June 2002 (see: https://www.wendangku.net/doc/c812088596.html,/index.do?nodeId=57#telecom).

Fast-paced changes in the character and deployment of the technologies have been accompanied by changes and adjustments in regulatory and investment policies by the various government levels. This report details prominent Federal Communications Commission (FCC) rulings, congressional legislation, and actions by state governments in the Appalachian Regional Commission (ARC) region related to cable modem, Digital Subscriber Lines (DSL) and other high-speed telecommunications services.

Highlights of Findings

The pace of change in ICT adoption has been extremely rapid. The use of computers and Internet services continues to expand across all population segments and the extension of broadband services is reaching into previously underserved areas. This report shows that broadband access has expanded significantly in all parts of ARC region. Especially encouraging is the increased availability of broadband in many rural counties that previously did not have access to this service.

However, the counties of the ARC region still lag significantly behind the rest of the nation in access to cable modem services, DSL services and other forms of high-speed Internet access. It is noteworthy that the gap between the share of zip codes in ARC counties with high-speed providers and the national share widened over the period. The broadband service gap grew to 29 percentage points between the Appalachian region and nation. In December 1999 there were 43 percent Appalachian zip codes with at least one high-speed provider compared to 60 percent for the nation. In December 2002 there were 59 percent in the Appalachian Region compared to 88 percent for the nation.

The recent market environment and proposed and actual changes in regulatory structures have not promoted increased competition among local carriers. In the earlier report we emphasized that the presence of several competing local exchange carriers offering advanced services improved choices for businesses and increased the information available to customers about the adoption and use of new technologies.

Policy makers should carefully consider recent initiatives at federal and state levels that make new network investment by incumbents unavailable to competitors through the unbundled network element platform (UNE-P). While these regulations may promote greater investments by incumbent local exchange carriers, they will limit market entry by competitive local exchange carriers. The overall effect on deployment and service choices from these regulatory changes is not clear.

This update report finds that federal and state investments over the past six years have encouraged broadband deployment and more effective adoption of ICTs in underserved regions. State policies including investments in schools and e-government networks have also encouraged adoption of advanced services. Finally, the report profiles more innovative non-regulatory interventions by state governments such as demand aggregation, resource sharing and partnerships with private providers, and anchor tenancy. These approaches have improved the quality and accessibility of government networks and have provided access to underserved customers in rural areas.

B. Cable Modem Services

1. The National Picture

Cable operators are the single biggest provider of advanced telecommunications services at the national level. This industry provides broadband services via their cable networks, which, to date, account for more broadband connectivity to residential and small businesses than does the wireline industry (such as DSL or T-1 and T-2 lines). In the broadband domain, cable modem services operate quite differently from telephone line based-Digital Subscriber Lines. Cable modem services are more widespread than digital subscriber line services, and although they offer less security they are often faster than DSL.

Crucially, cable modem service providers are not required to unbundle their services—a sore point with the telecommunications companies. Cable operators throughout the country were well positioned to move into Internet service provision because they had made substantial investment in their physical plant in the 1990s in order to offer digital television. Having a digital plant meant that adding on cable modem services as another revenue stream was an easy and profitable move for the industry. Some critics believe the entry of the telephone companies into DSL services was a late response to the early lead that cable television operators established, and that without the spur of cable modem competition, the telephone companies would have moved into broadband later and more slowly.

Figure 1: Cable Modem Subscribers

Source: NCTA, statistics as of December 2002

Of the nation’s 107 million television households, the cable industry states that it can provide cable modem service to 83 million, and that 11.3 million households currently subscribe (NCTA, 2003). FCC statistics on households served are considerably lower than National Cable Television Association’s statistics (the FCC statistics are from 2002), but still indicate that cable modem outstrips telephone-based broadband services: 5.2 million lines are cable modem services while 2.7 million lines are DSL (FCC, 2002b).

2. The Policy Environment

On March 14, 2002, the FCC adopted a major rulemaking change that sought to grapple with policy uncertainty regarding the regulation of cable modem services. In a declaratory ruling, the agency classified cable modem service as an “interstate information service” subject to FCC jurisdiction. In stating that modem service is not part of "cable service," the agency undercut state claims to regulate cable modem access. Further, the FCC explicitly stated that cable modem service is not a separate "telecommunications service" and therefore cannot be subject to common carrier regulations. This was prompted in part by state claims that cable modem service is more properly treated as a common carrier compone nt of cable service and therefore should be regulated in such as way as to require cable operators to open their networks so that other would-be competitors could use those facilities to provide broadband access.

One very significant impact of this ruling is to eliminate state jurisdiction over Internet services provided via cable operators. In the current environment, there remains little that state or local jurisdictions can do to directly accelerate the deployment of cable modem services to underserved areas. However, as noted above, the extension of basic cable services involving digital plant and equipment often brings with it the extension of cable modem broadband services.

3. Cable Modem Service in the ARC Region

The two maps below show cable modem access characteristics in ARC counties. The first map in Figure 2(A) shows that Appalachian region was sparsely served by this technology in 2000 (this map is equivalent to Figure 3 on page 27 of the original Links to the Future Report). The second map in Figure 2(B) shows some significant expansion of cable modem service by 2003. There were a number of counties in Ohio, Tennessee, Northern Alabama and Mississippi that acquired cable service between 2000 and 2003. Yet there are still wide swaths of central Appal achia that remain without cable services of any type.

Furthermore, it is important to note that these maps overstate cable access because they display counties where there is cable modem service available anywhere in a county even though many parts of a county may not actually receive service. Cable modem service typically is available only within towns, not in outlying rural areas. On balance the Appalachian region seems underserved in this type of Internet access in both 2000 and 2003, although service has undoubtedly improved over the period.

Figure 2(A): Cable Internet Access Available, 2000 (In Parts or Whole of County)

Figure 2(B): Cable Internet Access Available, 2003 (In Parts or Whole of County)

4. Sources and Methods for Cable Modem Service Estimates in the ARC: CableDataCom News. (2001, March 7). Commercial Cable Modem Launches

in North America. [Online]. Available:

https://www.wendangku.net/doc/c812088596.html,/cmic/cmic7.html; Cable Modem Deployment Update. (2000, March). Communications, Engineering and Design (CED) Magazine. M, cited in National Telecommunications and Information Administration & Rural Utilities Service. (2000, April). Advanced Telecommunications in Rural America: The Challenge of Bringing Broadband Service to All Americans. pp. 46-59. [Online]. Available: https://www.wendangku.net/doc/c812088596.html,/reports/ruralbb42600.pdf; CNET Networks. (no date). The Ultimate Guide to Cable Internet Access. [Online]. Available:

https://www.wendangku.net/doc/c812088596.html,/internet/0-3762-8-3741984-2.html; CNET Networks. (no date). CNET’s Ultimate Guide to Cable Access for 2003. [Online]. Available:

https://www.wendangku.net/doc/c812088596.html,/internet/0-3762-8-20828110-1.html?tag=hl; Authors’ search in the Cable Service Locator database at Cable Television Laboratories website,

https://www.wendangku.net/doc/c812088596.html,/default.asp?id=10790000000000000000; Authors’ search in the Deployment by States database at CATV CyberLab website,

https://www.wendangku.net/doc/c812088596.html,/frame/cmsa_state.html

The Cable Service Locator website (see abov e) that was used for cable Internet data collection runs searches based on a unique street address. To fill the gap between this feature and our goal (i.e., the county-level data for cable Internet availability), we first chose the county seat of each county as the representative location, then, used the street addresses of the chamber of commerce and/or Post Office locations in each county seat municipality as the representative addresses to perform our search. County seats and their chambers of commerce or Post Office locations typically represent the locus of economic resources and activities in most counties, and we thus reasoned that these were appropriate samples for our purpose, which was to identify counties with at least one cable Internet system in operation (and not necessarily to study the extent of cable Internet deployment among the communities within each county).

C. Digital Subscriber Line Services (DSL)

1. The National Picture

DSL is a second major broadband service. DSL is based on new switching and line conditioning technologies to provide high-speed access to households and businesses. This service is especially important to potential small business users because it is usually affordable and offers more secure lines than cable modem service. The FCC estimates that there were 2.7 million DSL lines to households in 2002, although this number is likely greater and has continued to grow over the past five years (FCC, 2002b).

The deployment of DSL and other business oriented high-speed services such as T-1 lines (which provide a dedicated circuit of 1.544 megabits per second bandwidth—significantly faster than DSL) comes under the purview of FCC and state regulation. Deployment of these technologies is strongly influenced by the competitive actions of private telecommunications companies both large and small.

The landscape of competing telecommunications providers pits the services of incumbent telecommunications companies (ILECs), composed of the former Regional Bell Operating Companies (RBOCs) and various smaller, often rural telephone companies, against competing telecommunications companies (CLECs) that may enter local markets. CLEC companies have three choices in establishing their services: they can build new facilities; they can lease or purchase unbundled network elements facilities from the incumbent at discounted rates under the unbundled network element platform, or they can take advantage of resale opportunities to use the incumbent’s network. The latter two options are under th reat from the pressures of the large ILEC firms and recent FCC rulings that are discussed below.

Over the past three years, CLECs have been hurt by the technology sector downturn of the last several years, as funding for expansion and new ventures in new service areas dried up. Many CLEC companies have downsized or closed. The remaining companies often rely heavily on the unbundled network element access to compete with incumbents. The Links to the Future report argued that CLEC activity is an important driver of competition in area markets and an important indicator of service alternatives. The potential changes being proposed at the federal level that limit access of CLECs to the unbundled network elements of the ILECs is a policy change that in our view warrants close scrutiny as it may further limit competition, especially in rural markets.

2. The Policy Environment

With the passing of the 1996 Telecommunications Act, Congress envisioned that incumbent telephone companies would make their physical f acilities such as switches and lines available to would-be competitors on a lease or resale basis. In this way, competitive services would grow without the initial, large expense of building entirely new facilities. The dominant ILECs are the former Regional Bell Operating Companies (RBOCs), including Verizon (the product of Bell Atlantic’s merger with GTE), but they also may be small rural telephone companies. After the 1996 Act, telecommunications companies and the FCC decided which equipment at a central office was to be “unbundled,” and made available to competitors. CLECs could challenge the ILECs in

providing local services by tying into the existing infrastructure. Most studies report that CLECs target businesses rather than residential users.

The FCC began to gather data on what it calls ‘advanced services’ in 1999 as part of its obligations under Section 706 of the Telecommunications Act. Its definition of advanced services is a conservative 200 kbps (kilobits per second) or greater, and distinguishes symmetric services from asymmetric services (designated as ‘high speed’ by the FCC), in which upload times or speeds are slower than are download speeds. Its reports have examined the national telecommunications backbone, so-called middle mile facilities, as well as last mile infrastructure (FCC, 1999, 2000, 2002). To date, each of its three reports concludes that broadband deployment is proceeding in a “reasonable and timely fashion,” (FCC, 2002, p. 2) although it notes that certain groups of consumers (for example, people on Indian reservations, rural populations) are more vulnerable to “untimely” access than others.

The FCC’s recent Triennial Review of February 2003 is a controversial regulatory development that will affect the viability of CLECs and possibly broadband deployment. That decision addresses the unfolding of competition—local services, long-distance and data—between incumbent service providers and competitors, and alters the terms under which the would-be competitors can use incumbents’ networks in order to provide local and advanced (broadband) services (FCC, 2003). In specific terms, the 1996 Telecommunications Act anticipated that competition in telecommunications services would unfold through three mechanisms: facilities-based entry, in which a competitor would make the substantial investment in building entirely new infrastructure; the purchase or lease of unbundled network elements from the incumbent local exchange company; and resale of the incumbent’s retail services. The 2003 Review sought to assess how well these mechanisms are working, and to modify the conditions of competition if necessary.

The full elaboration of the n ew rules was released in August 2003, and its language signals that competitors’ access to unbundled network elements will change in the near term. The original decision (in February 2003) itself elicited five separate statements from the FCC Commissioners, and was the product of internal brokering among them. So too, the final implementation document, hundreds of pages long, was the product of much internal negotiating.

The Triennial Review includes the decision that incumbents do not need to unbundle any fiber-to-the-home loops, nor do they need to unbundle bandwidth for providing broadband services that use fiber loops for loops deployed further into the neighborhood but short of the customer’s home (hybrid loops). However, competing carriers that currently provide broadband services over high capacity facilities will continue to g et that same access. But, the Commission will no longer require that line-sharing be available as an unbundled element. The net effect may well be that certain competing companies that have not invested in facilities will drop out of the marketplace.

The Commission also found that switching, a key element of the unbundled network element platform, for business customers served by high-capacity loops will no longer be

unbundled based on a presumptive finding of no impairment.1 States had 90 days to rebut the national finding, but this process was halted in early 2004 as a result of a court decision. For mass market customers, the Commission establishes criteria that states can apply to determine whether economic and operational conditions exist in a particular market that merit different treatment. The decision anticipated a three-year period for competing carriers to move from the unbundled network element platform (UNE-P) to facilities-based services.

Pertinent to DSL and more advanced broadband services, the intention of the Triennial Review decision is to make new network investment by incumbents unavailable to competitors through the unbundled network element platform (UNE-P). This is a response to claims by ILECs that there is a severe disincentive for new investment when facilities must immediately be shared with competitors. The overall prospect for spurring new competition in broadband under the Triennial Review’s orders appears dim. Commissioner Copps was particularly pessimistic about the new rules’ effect on competition in the broadband arena.

The argument that the unbundled network element platform requirement of the 1996 Act suppresses investment by the large telecoms has also influenced several legislative initiatives at the federal level. The most famous is the Tauzin-Dingell bill.

Neither this bill nor its siblings has been passed by Congress as of early 2004, but its provisions are similar to many others that have been submitted. It includes major provisions that would allow the Regional Bell Operating Companies (RBOCs) to engage in inter-LATA data transport, a line of business that currently is available to them only when they are in compliance with Section 271 of the Telecommunications Act.2 More widespread and speedy deployment of broadband services was offered as the primary benefit of the bill, 3 with the justification that such infrastructure is linked to improved economic development opportunities (Curtis, 1998). Indeed, the Tauzin-Dingell bill (H.R. 1542) has been lauded as a rural broadband deployment opportunity by incumbent telecommunications operators.4

1 The FCC defines impairment in its press release on the Triennial Review as follows: “Impairment Standard – A requesting carrier is impaired when lack of access to an incumbent LEC network element poses a barrier or barriers to entry, including operational and economic barriers, which are likely to make entry into a market uneconomic. Such barriers include scale economies, sunk costs, first-mover advantages, and barriers within the control of the incumbent LEC. The Commission’s unbundling analysis specifically considers market-specific variations, including considerations of customer class, geography, and service.” FCC (2003) FCC adopted new rules for network unbundling and obligations of incumbent local phone carriers.

2 Local Access and Transport Areas, or LATAs, are the basic geographic units differentiating local from long distance service.

3 1542 essentially would allow the former RBOCs to carry long distance data traffic without meeting the section 271 standards established in the 1996 Telecommunications Act. Section 271 establishes the process by which local exchange providers are allowed to offer long distance services.

4 Ordinarily, compliance with 271 requirements depends on having demonstrated to both state-level utility commissions and the FCC that these incumbent networks have sufficiently opened their markets to competitors such that they should be allowed to enter competitive, inter-LATA services such as long distance telephony. The idea is to allow competitors access to incumbents’ network elements so that they can offer new services such as Internet connections and high speed data connections. H.R. 1542 would permit RBOCs to provide high speed data transmission service without demonstrating that their networks

H.R. 1542 essentially would allow the former RBOCs to carry long distance data traffic without meeting the section 271 standards established in the 1996 Telecommunications Act. Section 271 of the 1996 Act establishes the process by which local exchange providers are allowed to offer long distance services. H.R.1542 forbids the Federal Communication Commission or any State from regulating the rates, charges, terms or conditions for offering or entering into high-speed data services, Internet backbone service or Internet access service. It likewise prescribes that Bell companies must upgrade their central offices to provide high-speed data services within the five years following the bill’s passage, although the definition of upgradeable loops is limited to those under three miles from the central office. In other words, the logical candidate loops for Digital Subscriber Line (DSL) services would receive the appropriate infrastructure so that the former RBOCs could offer high-speed data services to subscribers.

In summary, some federal policymakers approach the problem as one of greater investment in networks, but that investment always seems to carry “strings” that advantage one element of the industry at the expense of others, or at the expense of ratepayers. The deregulatory thrust of the 1996 Act prompts policymakers to find solutions to such problems in market dynamics rather than government subsidies, although government incentives can be favored mechanisms. On the whole, various approaches at the state and federal levels aim to enhance broadband infrastructure. Some proposed legislation as well as FCC regulations attempt to enhance competitive circumstances by prescribing which network elements an incumbent must share with a competitor. Some agencies channel subsidies directly to telecommunications providers, as with the Rural Utility Service’s low interest loans. Some proposals would reduce entirely state government restrictions or oversight of industry behaviors in the broadband arena.5 The prospect of additional high-speed or “advanced” services serving rural regions is highly attractive, but may come with high prices for service if competition is stifled.6

It is unclear how the recent policy discussions from FCC Triennial Review recommendation, the never-passed Tauzin-Dingell bill, and similar bills offered in State Legislatures have affected the deployment of DSL over our study period (2000-2003). However, in the near term, these policy discussions may well affect the market and investment climate and slow the entry of competitors into underserved areas.

are available to competitors as well. A corollary provision of the bill withdraws or modifies some of the obligations on incumbents (BOC and others) to share network elements that enable would-be competitors to use their facilities for high speed data services, limiting that obligation to line sharing provisions already spelled out in Section 251 of the 1996Telecommunications Act, but exempting access to remote terminals. Previously, such access had been permitted. For access to the high frequency portion of a loop, incumbents can charge requesting carriers an amount equivalent to what they impute to their own provision of the service. H.R.1542 mandates that incumbents must resell, at wholesale rates, any high speed data service they offer for a three year period following the bill’s enactment.

5 Several state-level Tauzin-Dingell types of bills, often called ‘broadband parity’ legislation, are currently under consideration.

6 The National Exchange Carriers Association has defined broadband as a service supporting data rates above 1.544 megabits per second, a much higher threshold than the FCC’s definition. In H.R. 1542, high speed service is defined as transmitting data at 384 kilobits per second in at least one direction, using packet-switched technology. This exempts technologies such as ISDN service from the definition. Dial-up modems can support speeds of only up to 56 kilobits per second (although the typical top speed is less).

3. DSL-Equipped Central Offices in the ARC Region

The two maps below show that the number and locations of DSL-equipped central offices in the ARC counties have ex panded significantly between 2000 and 2003. The first map in Figure 3(A) shows that DSL was not broadly available to subscribers in the ARC region in 2000 (this is the equivalent of Figure 4 on page 28, Links to the Future report). Kentucky, Ohio, Virginia and West Virginia were especially light in DSL-equipped central offices. The second map in Figure 3(B) shows evidence of significant expansion of DSL service, especially in Central Appalachian states such as Kentucky and West Virginia, and Ohio.

In 2000, we found that 81 percent of ARC distressed counties had no DSL-ready central offices. By 2003 only 39 percent of ARC distressed counties had no DSL-ready central offices. In the case of transitional counties, 63 percent had no DSL-ready central offices in 2000, but by 2003 only 32 percent had no DSL-ready central offices.

Table 1: DSL Capable Office by County Type (September 2003)

RAW NUMBERS Distressed Transitional Competitive Attainment

0 DSL switches 46 83 3 2

1-3 DSL switches 63 133 8 3

4 or more DSL switches 9 42 7 7

Total 118 258 18 12 PERCENTAGE Distressed Transitional Competitive Attainment

0 DSL switches 39% 32% 17% 17%

1-3 DSL switches 53% 52% 44% 25%

4 or more DSL switches 8% 16% 39% 58%

Total 100% 100% 100% 100% Two important caveats to this generally positive picture should be borne in mind. First, as in the case of cable modem service, the presence of central office DSL switches does not mean that service is widely available throughout a county, especially in more remote rural areas. Even if the telecommunications company’s local central office is equipped with the appropriate technology in order to offer DSL to its neighborhood, DSL services are limited to about 18,000 feet from a central office location. Therefore, in counties with between 1-3 switches it is more likely that significant areas still cannot access the service. In addition, as we found out in research for Links to the Future, the presence of a DSL-ready central office does not necessarily mean that the local service provider is actively offering and marketing the service to customers.

Figure 3(A): DSL-Equipped Central Offices, 2000 (by County)

Figure 3(B): DSL-Equipped Central Offices, 2003 (by County)

4. Sources and Methods for DSL-Equipped Central Offices the ARC:

Author’s search in the Central Office Finder database at DSL Reports website,

https://www.wendangku.net/doc/c812088596.html,/coinfo; National Telecommunications and Information Administration & Rural Utilities Service. (2000, April). Advanced Telecommunications in Rural America: The Challenge of Bringing Broadband Service to All Americans, pp. 60-72. [Online]. Available: https://www.wendangku.net/doc/c812088596.html,/reports/ruralbb42600.pdf

D. All High-speed Service Activity

1. The National Picture

The deployment of DSL and higher capacity services for larger business and government users has advanced at a rapid pace over the past three years. In addition, wireless broadband services have been spreading over the past three years, and are seen by some to offer attractive lower cost broadband access in rural regions with accommodating topographic and geographic features. We do not, however, present data on wireless services.

The rapid pace of telecommunications company consolidation was not entirely anticipated by the 1996 Telecommunications Act. The original eight “Baby Bells” now stand at four (BellSouth, Southwestern Bell or SBC, Verizon, and Qwest), and these companies dominate wireline high-speed services. The range of regulatory issues discussed above in the context of DSL services apply to all of wireline advanced services. In addition, the 1996 Act shifted much of the regulatory burden over these services to the states. This reality was not entirely anticipated and many states took years to build the capacity and expertise to design regulatory and investment responses to the new market environment and the spread of new ICT technologies. In what follows we profile the various regulatory and non-regulatory approaches that the Federal government and the ARC states have carried out to encourage quality basic and advanced telecommunications services.

2. The Policy Environment: Federal and State Initiatives for Broadband Deployment

Federal Investments to Encourage Access to Advanced Services

Federal activities around advanced services deployment have occurred in several agencies that administer programs to encourage investment in broadband. The most prominent set of investment programs are related to the FCC’s universal service programs, which are administered by the Universal Service Administrative Company. These include the High-Cost, Interstate Access, Interstate Common Line, Low-Income, Rural Health Care, and Schools and Libraries programs. The last program, commonly called E-rate, is probably the best known of the universal service programs oriented to broadband deployment, and it accounts for roughly half the universal service budget (the High-Cost fund is somewhat higher, at $3.15 billion in 2002). With the amount of E-rate funding indexed against a school’s percentage of students eligible to participate in the National School Lunch Program and a school’s or library’s rural location, the discounts can be sizable (up to 90% off of market charges). The E-rate program is currently capped at an annual funding level of $2.25 billion. There is an analogous program that supports connections and equipment for rural, not-for-profit medical facilities under the Rural Health Care label. A s noted in the Links to the Future report the E-rate program has had a very important impact on rural communities in Appalachia, although a number of states in the region seemed not to be capturing their fair share of funding as of 2000.

The Rural Utility Service (RUS) within the Department of Agriculture has several programs designed to improve telecommunications, including broadband deployment, in rural regions. Its loan program is available to rural telephone carriers and has been

credited with dramatically improving Internet access in rural regions. For 2003, the RUS announced $1.4 billion in loans and loan guarantees for broadband access, defined at 200 kpbs or more, available to communities with up to 20,000 people. It also maintains a Distance Learning and Telemedicine program directed at providing funds to schools and health facilities in rural regions. This sub-agency supported a Broadband Pilot Program that provided $100 million in loans to enhance the rate of technology deployment technology to rural areas, and this has been superceded by the larger loan program. Finally, a number of agencies within the federal government including the Department of Education (DoE), Housing and Urban Development (HUD), and the National Telecommunications and Information Administration (NTIA) within the Department of Commerce have initiated certain programs that support broadband deployment. NTIA’s Technology Opportunities Program is probably the best known and oldest of these programs. It began funding telecommunications-based projects that reflect innovative technologies targeting underserved communities, but as of 2003 its funding was cut to only about $15 million dollars. The Department of Education’s Community Technology Center program provided matching grants to states and localities for programs to improve technology training for low-income communities, but in the budget downturn of 2000 onward it too has had its budget cut and its future threatened. HUD has supported some technology programs within housing units. While this set of programs received relatively positive performance evaluations and helped bring both improved connectivity and training to underserved communities, they have been severely cut over the past two years Overview of State Initiatives

A review of how states have addressed broadband deployment and related issues may help to initiate policy discussions and frame possible approaches that other states might consider. The following is a brief review of some state-level programs or endeavors to encourage broadband deployment. They represent a varied collection, ranging from explicit state legislation to state agency efforts to Governor’s “blue ribbon” studies or commissions, to using state-controlled networks to leverage the infrastructure capabilities more broadly available to the public.

Many states have initiated programs designed to use telecommunications more effectively or to broaden capabilities, with many focusing programs on broadband infrastructure. Some states have used programs such as state universal service funds or special initiatives—often under the aegis of Governor’s Commissions or Task Forces— while others, such as Mississippi and Maryland, have enacted explicit legislation to address broadband deployment and access. Each state has a unique context in terms of its telecommunications regulatory systems and relationships with dominant incumbents (typically the Bell South or Verizon), and existing infrastructure.

Ohio’s National Regulatory Research Institute undertook a survey of state strategies regarding broadband in 2001 (National Regulatory Research Institute, 2001). Their results, based on 39 responses from state regulatory commissions, sought to ascertain state definitions of advanced services, how states handled advanced services, their approaches to open access, and their programs on advanced services. The overwhelming finding was that at that time, the state regulatory commissions were not regulating advanced services. The public utility commissions’ most direct approach occurred through their work to insure fair competition through interconnection agreements,

handling service quality complaints, or configuring universal service funds. Most of the state regulatory attention is directed at the large ILECs. Several commissions reported that their states have other non-regulatory mechanisms that are being used to encourage broadband (tax incentives, line discounts, grants), and some noted that their state networks are being used to leverage better consumer network capabilities. Many of such efforts are documented below.

State Legislative Actions on Deregulation

The RBOCs, particularly SBC, introduced Tauzin-Dingell-style legislation in several states in 2002-2003. These legislative efforts were labeled “broadband parity”—referring to parity with cable companies’ lack of an unbundling requirement. These bills were introduced in a number of states as of 2004 and had passed in Oklahoma (SB 2796), Indiana, Illinois and South Carolina.7 Bills in Texas, Connecticut, and Missouri have not yet passed. Such bills represent a way to bypass the federal layer of authority on regulating high-speed Internet services. Most of these bills are extremely brief (and many are identical). They generally prohibit any regulation of high-speed Internet services. Language from the pending bill in Texas (H.B. 1658, 2003) below is typical: “Notwithstanding any other provision of this title, the commission may

not require the unbundling of a network element used in the provision of

high-speed Internet access service or broadband service, the resale at a

discount of a high-speed Internet access service or broadband service, or

any other obligation prescribed by 47 U.S.C. Section 251(c), as amended,

as that obligation relates to the provision of high-speed Internet access

service or broadband service, unless the Federal Communications

Commission specifically authorizes state regulatory agencies to impose

such a requirement.”

7 A bill advanced by BellSouth in the South Carolina legislature in January 2003 would have deregulated all broadband services capable of transmitting information at rates exceeding 144 kb/s in at least one direction, or services that combine wire routing and transmission to allow users to access the Internet.

Non-regulatory State Strategies for Encouraging Broadband Deployment

States have adopted other non-regulatory strategies in order to push faster network capabilities out toward rural regions and different user groups. The three modes that characterize such efforts (and discussed in Links to the Future) include demand aggregation, resource sharing, and using the state’s own telecommunications traffic as an anchor tenant for build and finance a network that can be used more broadly by additional users. Various purchasing programs, consortium-building efforts, and state-sponsored grants can facilitate these approaches. Some of them are detailed in Appendix 1, which provides thumbnail descriptions of different state practices.

Table 2: State Network Strategies

Goals Mechanism Adopted in

a. Demand Aggregation ? To lower

telecommunications

costs for the state and

other government users.

The state government receives

volume discounts from telcos by

consolidating telecommunications

service demands of various state

government agencies and offices into

a single large purchasing unit.

? Virginia

b. Resource-Sharing ? To lower

telecommunications

costs for the sate and

other government users.

? To maximize the

efficiency of existing

and new

telecommunications

infrastructures in key

routes.

The state government and a telco

barter free access to the state’s

highway rights of way and free

telecommunications services to the

state government and/or

telecommunications infrastructure

ownership. The state government

and the vendor usually make a

commitment to a long-term

partnership that may last for several

decades.

? Maryland

? New York

? South Carolina

c. Anchor Tenancy ? To lower

telecommunications

costs for the sate and

other government users

? To upgrade public

telecommunications

infrastructure in all

parts of the state.

The state government and a telco or

telcos enter a contract to make

advanced telecommunications

available to the state government.

Telecommunications service to the

state government is provided through

public telecommunications networks,

which would receive switching and

transport capability upgrading as

specified in the contract. Such an

infrastructure improvement benefits

all telecommunications users in the

state (i.e., businesses and residents)

because all types of users use public

telecommunications networks.

? Alabama

? Georgia

? Kentucky

? Mississippi

? New York

? North Carolina

? Ohio

? Pennsylvania

? Tennessee

? West Virginia

Mechanisms include using state networks to extend broadband communications opportunities to non-profits or small businesses, using utility commission approval over mergers or network unbundling proceedings to leverage concessions from carriers, establishing special programs targeting rural digital inequities, and establishing unique joint ventures with carriers in order to achieve improved statewide infrastructure. Certain

cities and towns also have initiated telecommunications projects to enhance local connectivity and opportunities for economic development. Table 2 above shows the different approaches that the ARC states have used.

3. Advanced Services Deployment in the ARC Region

It is important to assess whether these various policy and regulatory efforts have contributed to more rapid deployment of all forms of high-speed services across the ARC region. In particular it is noteworthy that broadband deployment over the 2000–2003 period was influenced by a slightly higher level of federal investment which occurred prior to the effects of recent regulatory initiatives limiting CLEC access to the unbundled network element platform (UNE-P) of incumbent service providers (ILECs).

The FCC’s data from Form 477 categorizes high-speed providers as any service providing at least 200 kbps in at least one direction (user-to-provider or provider-to-user). In the original Links to the Future Report, only about 48 percent of the Appalachian region’s zip codes had one or more high-speed service subscribers in 2000, compared to the nationwide average of 60 percent—a statistically significant difference.

This update reports zip code data on high-speed service providers from December 1999 through December of 2002. The maps in Figures 4(A) and 4(B) below are corrected and presented using a clearer mapping procedure than in Links to the Future (these figures are similar to Figure 5 on page 29 of the Links to the Future report although the original 2000 map used dots rather than centroids to plot occurrences in the 2002 map). Here, the data and maps also provide evidence of significant broadband growth across the region.

Figure 4(A): Competition & Service of High-Speed Internet Providers, 2000 (by ZIP Code)

Figure 4(B): Competition & Service of High-Speed Internet Providers, 2003 (by ZIP Code)