A federal bill pushing "broadband" in the loop opens a path for fiber but is vulnerable on several fronts, making a rewrite likely.
BY STEPHEN N. BROWN
On June 8, Senate Bill 2698, "The Broadband Internet Access Act of 2000," sprang forth from the pens of 29 sponsors, including Sen. Daniel Patrick Moynihan (D-NY), who had planned the bill since January but press-embargoed it until June. With only two months left in their current terms, most senators and representatives are focusing on re-election and on bills supported by a broad coalition, something not yet in evidence for S2698. It grants an investment tax credit (ITC) to companies delivering "broadband" capability in the "last mile" of communications networks.
But politicians supporting the ITC can be criticized for supporting corporate welfare, a buzzword during re-elections. Moynihan is immune since he is retiring, but Sen. William Roth, Jr. (R-DE), the chair of the Senate Finance Committee, is running for re-election. Thus far Roth has withheld support despite the entreaties of commercial interests. Also, if the U.S. Treasury surplus is reduced by corporate and personal tax decreases next year, ITC supporters must justify why it is not a double-dip of tax reductions. Thus Sen. Ted Stevens (R-AK), the chair of the Appropriations Committee, is withholding his support for now.
This pattern, where Republican leadership is wary of the bill while the Democratic leadership embraces it, re appears in the House. Rep. Phil English (R-PA) of the Ways and Means Committee is the chief Republican sponsor of HR4728, a bill identical to S2698. English is down the ladder in seniority, ranking 15th out of the 22 Republicans on the committee. HR4728's chief Democratic sponsor is Rep. Robert T. Matsui (D-CA), the committee's third ranking Democrat. Reps. Tom Bliley (R-VA) and W.J. Tauzin (R-LA), heavy lifters for national telecommunications policy, have yet to be heard from.
There are two types of ITCs-20% and 10%-applied to certain equipment serving two types of users-business and residential-in three locales-rural, "underserved" urban, and everywhere else. The ITCs are granted for 100% of the qualifying equipment in a locale when at least 10% of the locale's eligible users purchase the broadband service, a hurdle low enough to invite criticism.
A 20% ITC applies to the total cost of a "last mile" system allowing business users to receive information at a rate of at least 20 Mbits/sec and to send at a rate of at least 10 Mbits/sec, provided the business is located in a rural area or an underserved urban one, which is defined by per capita income of a census tract. This ITC applies to residential users regardless of their locale. A 10% ITC applies to a receive rate of 1.5 Mbits/sec and a send rate of 0.2 Mbit/sec, provided the user is located in a rural or underserved urban area. The 10% ITC will benefit asymmetric digital-subscriber-line (ADSL) technology but apply to far fewer users than the 20% ITC, which will benefit faster technologies such as fiber optics and high-speed radio communications.
Residential and business users can be distinguished from each other now, but that may change. A network where a residence receives at 20 Mbits/sec and sends at 10 Mbits/sec will transform many a residence into a "home office" and into a competitor of businesses relying on DSL. Also, the two ITCs are not proportional to speed. Thus, ADSL's ITC is disproportionately high-half the tax break for one-tenth the speed of the better technologies.
But the bill has strict language regarding the equipment which qualifies for an ITC: "investment [is] taken into account...only to the extent it extends from the last point of switching to the outside of the [subscriber's] unit...in the case of a telecommunications carrier...[and] packet switching means controlling or routing the path of a digitized transmission signal... [and] packet switching equipment [qualifies] only if it is the last in a series of such functions performed in the transmission of a signal to the subscriber." In layman's terms, that weighty quote means an ITC applies to all equipment from and including the subscriber's premises up to the digital-subscriber-line access multiplexer (DSLAM). But the providers are opting to move the DSLAM closer to customers; thus, it is being moved from the central offices to remote terminals through digital loop carriers, the fastest-growing method of offering ADSL service.
According to a BellCore presentation in July 1998, the average annual national increase in DLC-served lines was then 20%, and, in the summer of 1999, Sprint's senior vice president for strategic development, Al Kurtze, told the House Subcommittee on Telecommunications that DLCs would soon be serving over "50% of the ILEC [incumbent local-exchange carrier] local loops." But S2698 embodies the notion that the various DLC equipment work sequentially, not simultaneously. Since a DSLAM line card controls or routes a "digitized" signal, the ITC would not apply to DLC equipment on the provider side of the line cards such as the remote terminal itself, the cost of the fiber feed from the central office to the remote terminal, and the SONET add/drop multiplexer. Thus S2698 is not overly generous to ADSL.
S2698 should stimulate demand for multimode fiber, but the amount of bandwidth such fiber delivers to the user is a function of distance, just like DSL. A multimode distribution network covering various terrain and population densities is not like a high-rise building situation, where singlemode fiber is placed in the riser and fed to short runs of multimode laying on the office floor. Multimode might deliver 1 Gbit/sec over a quarter-mile, but how much can be delivered over distances typical of a telephone loop, such as 2 miles and 3 miles? As long as delivered bandwidth remains highly sensitive to distance, inequities would plague a multimode network; a subscriber a quarter-mile from a network node will get many times more bandwidth than another 3 miles away. These imbalances would have to be remedied, perhaps by a new system-architecture.
On the other hand, no remedy would be required if subscribers were served by singlemode fiber, which could deliver voice, data, and uncompressed or lightly compressed video over the same strand and solve the cable industry's capacity shortage, which forces the industry to choose between devoting capacity to Internet service or to digital-TV carriage.
A singlemode solution is not impossible nor years away from commercialization. There is plenty of research on slow wave forms, a basis for slowing down light to switch it optically. For example, in early 1999 the New York Times carried a story about the remarkable physicists of the Rowland Institute for Science and Harvard University, who in a laboratory slowed light down to 38 miles per hour, a "basis for ultrafast optical-switching systems useful in computers that would operate using one light beam to control another light beam." A singlemode distribution network would moot the need for DSL and multimode distribution networks and be so attractive that an ITC would not be needed.
The bill's drafters broke the rule of "let sleeping dogs lie" by writing: "No Federal or State agency...shall adopt regulations or...ratemaking procedures...hav[ing] the effect of confiscating any credit," which prevents the Federal Communications Commission and state utility commissions from ordering providers to lower their prices by amounts equal to the ITC, a means of passing cost reductions to consumers. This is a regulatory tactic of the 1980s. The odds of it happening between 2001 and 2005, the qualifying time for the ITCs, are zero because all telecommunications pricing is regulated through price-caps, a form of regulation not practiced in the 1980s. Now consumer groups can point to the preamble of the 1996 Telecommuni cations Act, which says the Act's purpose is "[t]o promote competition and re duce regulation in order to secure lower prices and higher-quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies" and ask Congress why lower prices are automatically forbidden by S2698. It is definitely on the right track, but as the saying goes, "If at first you don't succeed, try, try again."
Stephen N. Brown writes on public policy in telecommunications. He can be contacted by e-mail at email@example.com or telephone: (615) 399-1239.