Federal Communications Commission
Washington, D.C. 20554
In the Matter of
SMALL TELECOM BUSINESS IMPACT STUDY.
New Networks Institute for TeleTruth
Bruce Kushnick, Executive Director
C/O New Networks Institute
826 Broadway, Suite 900
New York, NY. 10003
PART III: The FCC Failed to Present Proper Documents or Analyses:
11) The ISP Marketplace .... . 33
12) Counting The ISP Small Business Market ....... 34
13) Number of Online Customers ..... 35
14) The Valuation, Revenues and Employees of the Small ISP Market ......... . 36
15) Closing out CLECs and ISPs from Broadband ...... . 38
16) The Commissions Current Proposals Will Worsen, To Fix, These Problems .......... . 38
17) Current Broadband Marketplace --- ISPs Who Do and Do Not Offer DSL ...... . . 39
18) CLEC Have Been Harmed by the Bell Companies ....... . .. 41
19) FCC Has Failed To Perform Proper Analysis Of Impacts On ALL US Small ......... 43
Businesses --- The "Chain-of-Choice"
20) Failure To Perform Proper Analysis Of What The Small Business Telecom Providers .............. 45
Offer That Is Unique?
21) Summary of Impacts to Small Business Customers, ISPs and CLECs ........ 46
Endnotes (Seee Word Document)
New Networks Institute has conducted for TeleTruth an analysis of the likely impacts of some of the current proposals on small businesses. The Commission should (indeed, under the RFA, it must) consider this information as well as alternatives that would be less harmful to small businesses in reaching its final decisions on these various matter. Our analysis shows that if the current proposals are adopted:
The FCC Documents Under Discussion (with our brief interpretation) are:
This proceeding proposes to eliminate equal access obligations just as the Bell companies are entering long distance.
PART III: The FCC Failed to Present Proper Documents or Analyses:
This Small Telecom Business Impact Study was created by New Networks Institute for TeleTruth.
This section of these Comments provides a discussion of the current ISP (and CLEC) DSL marketplace. TeleTruth urges the Commission to consider this information in formulating its final decisions in these matters, as well as in RFA issues in these and future proceedings.
We will focus on small Internet Providers because of the extensive amount of data already collected by New Networks Institute, including national surveys, filings, comments, articles, and law suits, among other items.
We should also make clear the fact that TeleTruth is a
customer coalition that includes small businesses, and small
ISP and CLEC competitors. TeleTruth's board includes a
number of ISPs and CLECs.
11) The ISP Marketplace
Internet Service Providers (ISPs) are mostly comprised of a rare breed of entrepreneurs who, at their own expense, clearly saw the need to supply customers with the foundations of the Digital Age -- Internet and web service provision, DSL services, and everything from e-mail to the creation of web sites. This group that has been the real innovators of our Digital Future, not the monopolies who supply local phone service, such as the Bell companies.
And alongside of this marketplace has also been the growth of the Data CLECs ("D-LECs") and CLECs who offer local voice services, though many companies offer both voice and data services .
As we will discuss: For the last 6 years,
First, we will discuss the size of the marketplace, including customers and revenues.
12) Counting the ISP Small Business Market
As the opening quote of this documents announces, the FCC's decision could destroy the entire ISP market, and TeleTruth as well as most analysts agree with that assessment. Therefore, it is very important to understand how many companies will be affected by the FCC's rulings.
There are a number of sources that need to be discussed about the size of the market.
The FCC's information was supplied by the SBA. According to the SBA, there were 2940 small ISPs. As we pointed out previously, this statistic appears to be from 1997, before the growth of the entire Dot.com and Internet marketplace.
Another statistic we found from government sources was the published information for ALL ISPs in the Census. The new business identification codes (NAICs) that replaced the earlier (SIC) codes, shows that in the 1997 Census, there were 4,165 Internet Providers.
This means that the Small Business ISPs who qualify would be approximately 70% of the ISP market in terms of total companies for the year 1997.
However, there is a great deal of other data that the FCC should have quoted. For example, the most important source of ISP information is the ISP World's collection of ISP-market related companies and databases, including Boardwatch Magazine and ISP Planet, among others.
According to Broadwatch's most recent survey of ISPs in March 2001, there were 7,288 ISPs listed in their directory.
TeleTruth believes that for the year 2002, the answer lies somewhere between the government numbers and the ISP Directory. However, the FCC is making decisions based on old, inaccurate data, and considering the impacts that can occur, it is clear that they are in violation of the IRFA's mandate to give accurate data. Also, the FCC could at any time call the ISP Directory and confirm the information through various means. With billions of dollars, thousands of companies and millions of customers effected, this work would be critical to making an informed decision.
13) The Number of Online Customers
According to the National Telecommunications and Information Administration's ( NTIA) recent study, "A Nation Online: How Americans Are Expanding Their Use of the Internet", released February 2002, half of America, 143 million people, were online as of September 2001.
And who's handling all those Internet surfers? Another series of numbers from the recent 2001 survey of ISP Planet claims that the Top 25 ISP companies control 45% of the marketplace (including DSL conductivity). This includes AOL, MSN, AT&T, Time Warner, the Bell companies, Earthlink. However, the majority, 55% of the market is controlled by the other, mostly small ISPs ---- representing a whopping 77 million customers nationwide
NOTE: It is hard if not impossible to compare all of these statistics with rigor because there are missing pieces of information.--- what is the number of total accounts and how does it compare to the total user population or what is the number of customers who use more than one account, or families who all use the same account, etc..
14) The Valuation, Revenues and Employees of the Small ISP Market.
If the amount of customers or the total amount of ISPs is still not an exacting piece of data, then the amount of revenues, staff, or the valuation of these companies is also more analytical artwork than exacting science.
For this analysis, we will use the Government supplied information, but with the caveat that that we consider their information to undercount, not overcount, the marketplace. According to the Census, 1997, the entire ISP market averages out to a small business --- representing 4165 companies with average revenues of $8 million dollars and total industry revenues of 33.5 billion dollars.
And the valuation of these companies are also very large. The chart below, compiled by ISP Planet, shows that the value of Dialup customer to be $678 in March 27, 2002 though it has decreased steadily since the arrival of broadband.
However, the fact that one customer is worth approximately three years worth of service is a sign that losses to any company of Dialup customers is harmful.
Out of these statistics what we see is that the ISP marketplace has been a fast growing industry made up of entrepreneurs. More work would be required by the FCC to qualify and quantify the size of the marketplace, though ISP World indicates that there are over 7000+ ISPs, almost all small business, who represent 75 million customers --- 1/2 of all online customers.
Also, SBA found that in 1997, the total ISP market was worth $33.5 billion and paid payrolls of $9.8 billion. Based on the information presented by ISP World, this revenue figure could be double or triple that. If customers are counted and the valuations made of the Dial-up customer valuations, the total for this marketplace would be worth triple the total revenues --- a very large number.
We will discuss the expected impacts these rulings could have on this marketplace in the next few sections. However, one thing is clear --- The FCC has No clue to the size and scope of the ISP marketplace today, and more research would be needed before even an educated guess could be made.
15) The Current Market Analysis Missing --Closing out the CLEC and ISP from Broadband
The TeleTruth Analysis: The current trend of customers is to leave Dialup and go to broadband, whether its cable modems or DSL. This is not a "new product" for customers, but it is still faster-better version what they currently have. "New Product" would denote seriously new applications, which today, because of the limitations of ADSL, the marketplace, while viable, is still not in revolutionary change -- just evolutionary change.
Therefore, ISPs offering DSL has been and continue to be the most viable next step for a customers to use broadband. Also, it is clear that the choice of cable modem is also not a 'new product' but an enhancement to current web and Internet use. And customers who choose cable modems are usually doing it out of convenience vs a dramatic difference in service offerings.
And so the FCC's current ruling harms ISPs and CLECs in that:
Which brings us to the question the FCC refuses to answer or supply any data for in their IRFA.
And while the rulings may or may not happen, there is another critical issue that needs to be addressed --- The FCC today is not actively defending the rights of the small ISPs and CLECs and this has caused serious problems for the current industry's health and growth.
16) FCC Has Not Acted to Fix ISP Problems, and These New NRPMs Do Nothing to
Fix the Problems.
A true IRFA analysis about small business telecom competitors would conclude that the current FCC is in violation of the Telecom Act and all of its provisions.
To date, the FCC has not properly defended small business rights, especially the ISP and CLEC markets. In fact, the industry has consistently presented data to the FCC to defend the small businesses and it has fallen on deaf ears. Dave Robertson, the head of the Texas ISP Association, (TISPA ) recounted his meeting with Chairman Powell and senior staffers at the FCC Enforcement Bureau.
In fact, The Texas ISP Association presented an entire book of material showing violation after violation. To read this 113 page series of violations see: http://www.newnetworks.com/SWBCOMPLAINTS0420.pdf
Another state ISP association, this time in California, is now fighting to have DSL oversight moved out of the FCC completely. A Complaint by the California ISP Association, CISPA, won the first round against SBC/Pac Bell. The California PUC has ruled (March 29th2002) that they have jurisdiction over DSL and they are willing to hear a case that Bell is discriminating against small ISPs who want to sell DSL in California.
There are thousands of other documents, including filings, Comments, etc., at both the state and federal level that show that the small ISPs and CLECs are regularly being harmed and that enforcement is totally missing.
An article "Disconnect How Bush and Michael Powell are Killing the New Economy. And how to turn it around" by Karen Kornbluh that appeared in Washington Monthly, Oct. 2001, lays out how Rhythms, a bankrupt CLEC who provided DSL with their affiliate ISPs, was harmed by this lack of enforcement.
More recently, another Washington Post article, "Cheating or Competing", April 12th, 2002, tells the story of how other CLECs, including Cavalier and Ntegrity, that offered local phone competition had a litany of problems that caused the local Bell monopoly.
17) Current Broadband Marketplace ----- ISPs Who Do and Do Not Offer DSL
New Networks Institute's surveys of Internet Providers gives us a glimpse into the FCC's current handling of ISPs and we need to bring this into the analysis. According to our nationwide survey, approximately half of ISPs offer DSL today.
A little over half (57%) of the responding US ISPs offer DSL. However, it is clear from this survey that many ISPs are being blocked from offering DSL, or have stopped all together for a number of reasons. As the exhibit below shows, of those that do not offer DSL, the primary reasons are: (Many ISPs had more than one reason for the problems.)
Service problems caused by the Bells can be so bad that the ISP can not offer a quality product. As one Texas ISP states:
The harm caused by the Bell companies means that many ISP customers will not have the ability to use their ISP for DSL. As one ISP wrote:
The prices and handling of the Bells resale of DSL to the ISPs has also played a factor in harming the ISP's ability to compete. As one Texas ISP put it:
The Texas ISP Association filed a Complaint over this issue, and as we mentioned, there is currently another battle being fought by the California ISP association (CISPA).
Sadly, this situation is not new. In our Nationwide ISP Survey of 2000, the same issues were prevalent dealing with broadband. This exact same theme was echoed by a Washington ISP who uses US West.
18) CLEC Have Been Harmed by the Bell Companies.
Most industry analysts believe that the actions at the FCC will harm the DLECs, the competitive companies that handle DSL and Data services, and the CLECs, who offer both voice and DSL services. Since most of these companies are dwarfed by the Bell companies, the industry is comprised of mostly small independent companies. And it is also clear in previous quotes --- the FCC does not have a clue about the number of small companies vs the larger ones.
However, there are three important issues dealing with CLECs regardless of their size:
The current situation is not pleasant for the CLECs. The FCC has not enforced the laws.
As we discussed in the ISP section, the laws are not being enforced -- and this is for both voice as well as current DSL deployments. The situation is not new either. Covad Communications, a CLEC that sells competitive DSL, testified in front of the Massachusetts Department of Telecommunications and Energy (DTE) that the Bell caused problems are continuous -- everything from not completing the wiring installation to playing favoritism with its own DSL product. (NOTE: Bell Atlantic Massachusetts is now Verizon.)
Hundreds of CLECs and ISPs have gone out of business over the last year. Clark McLeod, Chairman and CEO, of McLeod USA testified at "Competition in the Local Telephone Marketplace", a Senate Commerce Committee hearing on June 19th, 2001. He clearly stated that the local Bell monopolies have not opened their networks to competitors and the lack of enforcement of the current laws has harmed the entire CLEC business.
Mr McLeod stated:
His point of view is that the networks are not open and there is no "equal access" today.
And he believes that without fixing the current Bell caused problems there will not be an
If the harm to the CLEC market continues and they are restricted from using the customer-funded wireline networks, then not only will the CLEC markets be harmed, but also the small ISP and their customers will also be effected. To read more about the problems in the CLEC markets see: http://www.newnetworks.com/clecharm.htm
19) The FCC Has Failed To Perform A Proper Analysis Of Impacts On ALL US Small Businesses --- The "Chain-of-Choice"
A "class" of small business that is totally missing from ALL of the IRFAs are the small businesses that depends on these ISPs and CLECs --- The "Chain of Choice". The ISP and CLEC companies are not the only loser if the FCC creates a duopoly. The duopoly will block choice, innovation, and the small businesses across America are the losers. The "Chain-of-Choice'--- the small business customer, the ISP and the CLEC all are partners in services. And all of them in fact depend on using the phone networks supplied by the monopoly provider. If the ISP or CLEC has a problem caused by the local phone company, it also effects the customer.
The FCC writes:
However, the FCC in no way encourages competition and uses of the local networks. Instead the FCC talks broadly about platforms --- though they offer no proof that their plan will encourage broadband, foster investment or innovation.
The FCC has failed to identify the fact that it has been the independent ISP and CLEC that have created the Digital Age, not the Bell companies--- and it is best to have many companies use the wireline networks, not just the Bell companies. As we previously mentioned, it was the independent ISPs and CLECs and entrepreneurs who are the innovators, bringing to marketplace web sites, Internet , email, web hosting and a host of other innovations. The Bell companies were not responsible for the web or Internet, have repeatedly filed to charge more for these services and have done everything possible to eliminate the primary drivers of innovation and the distribution of these technologies.
And we have documented in numerous places the fact that the Bell reneged on all of their fiber-optic plans to the home -- even when they were given relaxed regulations and money to build these new networks.
The ISPs are smaller local firms that have not lost sight of customer needs, and as a result, will usually deliver a higher-quality product. If this segment of the industry does not survive, then the entire telecom and tech sector is hurt, and the American public is left with no choice but a monopoly product with little innovation, cost savings, or quality customer service.
Additionally, a survey conducted by NetAction of customer satisfaction of DSL, (released 7/25/01) clearly showed that competitors have a smaller percentage of complaints as compared to the Bell company services.
Once again it is clear that customers will lose choice and quality services if the Bell companies succeed in harming competition.
20) Failure To Perform Proper Analysis Of What The Small Business Telecom Providers Offer That Is Unique?
Voice over IP and SDSL are just two innovative areas that the Bell companies are blocking and harming. And yet they are services and the essential technologies for the small business.
SDSL is the two-way DSL product that neither the Bell nor the Cable companies offer and it is the small business enabler-- the lower cost alternative to small company high speed services. The Bell companies offer two alternatives to broadband -- a "T1", which is an expensive business service that comprises of a bandwidth the equivalent of 24 lines--- and can handle both voice or data calls. The other service is ADSL, which is essentially a one-way product for residential use.
Covad and other competitors with their ISPs offer an in-between product -- SDSL, a two-way product that is a low-cost equivalent for a small business of the more expensive T1. The Bells will never seriously offer this product because it cannibalizes their T1 service. And the cable companies do not offer this service or will with any rigor for years.
Therefore, there is a strong reason for the ISPs and CLECs to exist to deliver new, innovative products that the other monopolies will not offer --- and a duopoly will never fulfill.
Voice over IP -- Another interesting fact is that the Bells ADSL product has serious flaws as compared to the Competitor product. The current Bell product has a technical glitch that makes it hard to use "voice over IP" services, the innovative competitor to regular voice phone services that uses the Internet as its network to deliver voice calls. It can also block streaming video because of the service limitations. The Competitive DSL and SDSL products do not have these problems.
The FCC is in violation of the IRFA for not including these new technologies brought by these small companies as having an impact on the overall health of the US.
Markets that are not covered by the Bell or Cable Companies. --- In the numerous discussions of the Bell Companies and Cable companies becoming the Competitive duopoly, one of the most overlooked items is the fact that there are many rural areas of the country where the competitive local phone companies -- or even the Internet providers, have been the active force to deliver dial-up services and broadband. For example, New Edge Networks provides broadband to smaller markets and serves over 100 markets with NO broadband alternative Baby Bell, Cable or other service provider.
Another case is the Willowbrook Metropolitan District in Summit County, Colorado, a geographic area not served by the ILEC DSL (Qwest) nor by the cable modem company (AT&T). In fact, the Ruby Ranch Internet Cooperative Association was formed to deliver services to this area and it has been a long struggle to get US West to actually give these independent ISPs the "subloops" which are needed to connect the DSL technology, known as "DSLAM" to the subscriber homes. (See www.rric.net which describes this independent groups' process to give these underserved customers service.) The Coop found that the technology part was easy... It's getting access from the local monopoly that is the hard part. It required the group to file an informal complaint with the FCC, and required arbitration from the state Commission.
21) Summary of Impacts to Small Business Customers, ISPs and CLECs.
As we have demonstrated, the current environment is harming the ISPs and CLECs and these new laws will put the nail in the coffin. NNI estimates that the majority of small ISPs and CLECs will be harmed, costing billions of dollars of revenues, jobs, etc.
Using the data supplied by the SBA on these companies, of the 2940 companies, we expect over half to have impacts, including the closing of their business. Therefore, we are looking at approximately 1500 companies to have serious impacts on their business. Is this acceptable?
On the revenue side, if the we expect
Secondly, the recent collapse of the CLEC market which was in part caused by the Bell companies will continue because the small CLECs will be unable to purchase needed network services. This will also effect the entire segment from investment and capital, not to mention the ISPs and customers.