10. The Commission has taken many actions both before and since the 1996 Act to remove obstacles to facilities-based competition in local telecommunications markets. For example, among other things, we have implemented Section 251 of the Communications Act, forborne from enforcing statutory provisions and regulations that could inhibit the ability of new entrants to compete, made additional spectrum available to competitors using wireless technology, and increased the flexibility of use of previously allocated spectrum." These efforts have continued during the past year.

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11. In the Competitive Networks NPRM, we discussed our thoughts regarding the development of facilities-based competition generally," and in a companion Notice of Inquiry we sought comment generally regarding factors that may be impeding the growth of competitive networks and what actions we should take to ameliorate such impediments.” The principal focus of the NPRM, however, was on promoting competitive access to MTEs, such as apartment buildings (rental, condominium, or co-op), office buildings, office parks, shopping centers, and manufactured housing communities. This important segment of the market poses special challenges to facilities-based entry. In order to offer service in an MTE, a facilities-based competitor must either gain access to existing on-premises wiring or obtain access to conduit and other suitable areas in order to install its own equipment. In addition, providers using wireless technology must obtain access to rooftops or other suitable locations to place their

Access to these facilities and areas is typically controlled by the building owner, the incumbent LEC, or both. Thus, unlike in the case of a stand-alone residence or commercial enterprise, a competitive facilities-based carrier cannot supply service simply by dealing with the end user.

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(Continued from previous page)

See Section V.E, infra.

30

See generally Competitive Networks NPRM, 14 FCC Rcd at 12678-80, 47 8-10.

31

See, e.g.,

Public Notice, “The Wireless Telecommunications Bureau Announces That It Is Prepared to Grant 1848 Licenses to Operate in the 39 GHz Band,” DA 00-2242 (rel. Oct. 2, 2000) (announcing licenses ready to grant in 38.6-40.0 MHz band); Amendments to Parts 1, 2, 87 and 101 of the Commission's Rules to License Fixed Services at 24 GHz, WT Docket No. 99-327, Report and Order, FCC 00-272 (rel. Aug. 1, 2000) (adopting service rules for 24.25-24.45 and 25.05-25.25 GHz bands); Rulemaking to Amend Parts 1, 2, 21, and 25 of the Commission's Rules to Redesignate the 27.5-29.5 GHz Frequency Band, to Reallocate the 29.5-30.0 GHz Frequency Band, to Establish Rules and Policies for Local Multipoint Distribution Service and for Fixed Satellite Services, CC Docket No. 92297, Third Report and Order and Memorandum Opinion and Order, 15 FCC Rcd 11857 (2000) (declining to extend restriction on incumbent LECs and cable companies holding attributable interests in Local Multipoint Distribution Service Block A licenses, based in part on finding that open eligibility may speed the availability of broadband services in rural areas); Service Rules for the 746-764 and 776-794 MHz Bands, and Revisions to Part 27 of the Commission's Rules, WT Docket No. 99-168, First Report and Order, 15 FCC Rcd 476 (2000) (establishing service rules for spectrum to be vacated by television broadcasters), Memorandum Opinion and Order and Further Notice of Proposed Rulemaking, FCC 00-224 (rel. June 30, 2000) (addressing issues raised on reconsideration and seeking comment on potential cost-sharing rules, relocation agreements, and secondary auctions to facilitate clearing of spectrum), Second Memorandum Opinion and Order, FCC 00-330 (rel. Sept. 14, 2000) (dismissing additional petition for reconsideration as moot).

34

See id. at 12688, 1 30; see also Section 706 Second Report at para. 60 (noting that landlord control over access may create barrier to provision of advanced services in MTEs, especially by competitive providers).

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12. Attention to the unique issues and challenges affecting access to MTEs is important because a substantial proportion of both residential and business customers nationwide are located in such environments.” Thus, an absence of widespread competition in MTEs would insulate incumbent LECs from competitive pressures and deny facilities-based competitive carriers the ability to offer their services in a sizable portion of local markets, thereby jeopardizing full achievement of the benefits of competition. Moreover, such a situation would directly undermine the express Congressional goal of bringing competition and advanced services to “all Americans."36 Finally, because MTEs frequently offer a relatively large revenue opportunity in a limited space, they can be the most efficient environments for many competitive LECs initially to serve. Thus, inability to compete in those environments in the short term may jeopardize the business plans and viability of some potentially powerful competitors that could in the long term offer ubiquitous competition throughout an incumbent LEC's service area. Indeed, even if competitive access is available in some MTEs, competitive carriers may be unable to succeed economically, and thus offer competitive choices to any customers, without broad access to MTE markets. For these reasons, we requested comment in the Competitive Networks NPRM on the practical concerns involved in serving MTEs, on the state of the market, and on several potential actions that we could take to promote competitive access.

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13. The Competitive Networks NPRM generated extensive interest among incumbent and competitive LECs, building owners and managers, electric and gas utilities, cable service providers, local governments, and others. We received 438 formal comments and 252 reply comments. In addition, the Commission's Local and State Government Advisory Committee (LSGAC) filed two recommendations. We have also received numerous ex parte filings from parties representing a variety of interests, including several members of Congress. Although we do not list these ex parte filings individually, we have incorporated them in the record and we have fully considered them in reaching the conclusions set forth herein.39

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Commenters and the short forms by which they are cited herein are listed in Appendix A. Unless otherwise indicated, all citations to comments and reply comments herein refer to comments and reply comments on the Competitive Networks NPRM. In order to enable the Commission to develop a more comprehensive record in this proceeding, we grant the motions to file further reply comments by the Wireless Communications Association International, Inc. and by Concerned Communities and Organizations.

38

FCC Local and State Government Advisory Committee Advisory Recommendation Number 19: Notice of Proposed Rulemaking, Notice of Inquiry, and Third Further Notice of Proposed Rulemaking, WT Docket No. 99217, CC Docket No. 96-98, dated Nov. 1, 1999 (LSGAC Recommendation No. 19); FCC Local and State Government Advisory Committee Recommendation Number 22: Notice of Proposed Rulemaking, Notice Of Inquiry, and Third Further Notice of Proposed Rulemaking, WT Docket No. 99-217, CC Docket No. 96-98, dated Aug. 29, 2000 (LSGAC Recommendation No. 22).

39

Ex parte filings are accessible on the Commission's Electronic Comment Filing System (ECFS), http://www.fcc.govie-file/ecfs.html. Instructions for using ECFS are also available on that page.

IV.

REPORT AND ORDER / MEMORANDUM OPINION AND ORDER

A.

State of The Market

14. Based on the record compiled in response to the Competitive Networks NPRM, we conclude that meaningful progress has been made in the competitive development of the market for facilities-based telecommunications services in MTEs, but some obstacles to full competitive choice remain. We are concerned that, at least in certain cases, both building owners and incumbent LECs retain the ability and incentive to discriminate among and impose unreasonable terms on new entrants. As a result, end users have likely been forced to pay unnecessarily high rates for local telecommunications services, and have been denied the benefits of advanced and innovative service options. At the same time, we are mindful that there has been progress in the market, and we are hopeful that this trend will continue to yield more competitive options for increasing numbers of consumers. Indeed, some recent developments indicate that this may be the case.

15. MTEs constitute a substantial portion of both residential and commercial units in the United States. An MTE is any contiguous premises under common ownership or control that contains two or more distinct units occupied by different tenants. Thus, MTEs include, for example, apartment buildings (rental, condominium, or co-op), office buildings, office parks, shopping centers, and manufactured housing communities. There are over 750,000 office buildings and over one million residential multiple dwelling units in this nation. As of 1990, approximately 28 percent of all housing units nationwide were located in multiple dwelling units, and that percentage is likely growing.

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16. There is evidence in the record that both wireless and wireline competitive LECs have made progress in obtaining access to MTEs, especially in commercial markets. For example, WinStar currently provides broadband communications services to over 15,000 small and medium-sized business customers in 31 domestic markets."Virtually all of these customers are located in MTEs. Competitive LECs continue to contract for access to an increasingly large number of commercial buildings. Indeed, there is evidence that the availability of alternative providers for local telecommunications services is often a selling point in leasing negotiations between building owners and prospective tenants and, thus, building owners may have incentives to enter into agreements with competitive LECs for building access. Moreover, in response to the issues raised and developed in this proceeding, some of the leading companies in the real estate industry have recently made a commitment to the Commission to undertake to develop and promote the use of sample contracts for building access, as well as "best practices” to facilitate negotiations for building access. These best practices will include a firm policy not to enter into exclusive contracts for building access; procedures and expedited time frames for

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a

40

Access to Buildings and Facilities by Telecommunications Providers: Hearing Before the Subcomm. on Telecommunications, Trade, and Consumer Protection of the House Committee on Commerce, 106th Cong. 24 (1999) (Written Testimony of William J. Rouhana, Jr., Chairman and Chief Executive Officer, WinStar Communications, Inc.).

42

See Cornerstone Properties, et al. Comments at 7-8. See also Section 706 Second Report.

processing tenant requests for service from a particular telecommunications provider, where appropriate space is available and the provider intends to substantially accept a model access agreement; a clearer and more predictable process for responding to requests for access generated by carriers; establishment of an independent clearinghouse for complaints by tenants, real estate companies, and service providers; and support for periodic studies of the market under the auspices of the Commission. This initiative represents a positive step in the development of the market for building access.

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17. Notwithstanding this progress, however, there is also meaningful evidence that competitive LECs have in many instances encountered unreasonable demands and significant delay in their efforts to obtain access to buildings. Competitive LECs complain that they are being impeded by incumbent LECs and building owners. In some instances, competitive LECs state that they have been denied access to buildings completely, or have been charged exorbitant rates for access or been subjected to unreasonable conditions. And, in others, contract negotiations have reportedly spanned upwards of eighteen months - a timeframe that is particularly problematic for a service provider in a competitive market."

18. Although the record does not contain statistical evidence regarding the prevalence of such activities, competitive LECs cite to specific incidents of unreasonably restrictive behavior on the part of incumbent LECs and building owners that, they assert, are hurting competition and consumers. These include the MTE in New York City that has been through three different owners since 1998, all of whom have denied access to a competitive LEC, despite the fact that tenants in the MTE have sent letters to the owners requesting access for the competitive LEC.S. Another incident involves the manager of a large office building in Florida who has demanded a rooftop access fee of $1,000 per month and a fee of $100 per month for each in-building hook-up from a competitive LEC. The competitive LEC estimates that this fee structure would cost it about $300,000 per year to service this one building. 52 Yet another incident involves a competitive LEC that has been negotiating for over 18 months with several Boston, Massachusetts MTE owners who claim that they are still examining the telecommunications issues, while their tenants remain without choice of telecommunications service providers.

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19. The record further indicates that incumbent LECs are using their control over on-premises wiring to frustrate competitive access to multitenant buildings. Competitive LECs report that they have encountered difficulties with incumbents when attempting to arrange for interconnection or lease unbundled network elements. For example, competitive LECs report that incumbents may fail to timely provide non-proprietary information in their possession, require the presence of their own technicians to

46

Id.

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AT&T Comments at 4; Nextlink Comments at 4-5; Teligent Comments at 9-10; WinStar Comments at 16-18.

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supervise competitive LEC wiring, and take unreasonable amounts of time in scheduling such visits. In addition, competitive LECs contend that incumbent LECs often require network configurations which may be disadvantageous for competitors.

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20. Building owners argue, however, that competitive LECs have yet to provide service in many of the buildings to which they have obtained rights of access. For example, according to one press account, WinStar has wired 4,000 of the approximately 8,000 buildings for which it has obtained access, while Teligent has wired 3,000 of the approximately 7,500 buildings for which it has obtained access. Building owners argue that these numbers suggest that competitive LECs are not even able to serve the buildings they have rights to access now, and thus are not constrained by any alleged lack of nondiscriminatory access to all buildings.

21. Economic theory supports the idea that building owners may, at least under some circumstances, be able to exert market power over telecommunications access. There is no question that building owners control access to any individual building. Whether that control translates into the ability or incentive to unreasonably restrict access to competitive LECs depends on the circumstances in particular real estate markets, as well as the time frame one is considering. For example, over the long term, tenants may have the ability to neutralize building owners' control by choosing not to occupy buildings that do not offer attractive telecommunications service options. The extent to which tenants may have effective choice in the near term depends on several factors, including the availability of alternative spaces, the typical length of leases, the costs of relocation, and the relative importance of telecommunications among the factors a tenant considers when choosing a space. The extent of tenant power may vary from market to market, including between residential and commercial tenants as well as in different geographic areas and market cycles.

22. A noteworthy development is the emergence of a new type of telecommunications service provider. These service providers, often referred to as "building LECs” or “B-LECs,” exclusively serve MTEs. In many instances, these companies own telecommunications facilities only within the buildings they serve, and must interconnect with other carriers to transmit signals outside these buildings. Many of these ventures have been created by, or with the active participation of, the real estate industry. Also, some of the companies partner with major real estate companies in order to serve their buildings. One such company, Broadband Office, Inc., has reportedly partnered with 50 major real estate owners across the country.

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23. We are encouraged by the progress we have seen in the development of the competitive market for facilities-based telecommunications services. Competitive LECs have made gains in the overall number of buildings to which they have access. In addition, we believe that the recent effort by representatives of the real estate industry to begin to develop and promote the use of both model

54

See Letter from Frank Simone, Government Affairs Director, AT&T, to Magalie Roman Salas, Secretary, FCC, dated June 20, 2000.

55

Id.

See Letter from Matthew C. Ames, Counsel for Real Access Alliance, to Magalie Roman Salas, Secretary, FCC, dated July 3, 2000 (enclosing article from June 16, 2000 edition of Commercial Property News entitled “Demetree, Hornig Stress Tenant Needs”).

57

See Letter from Kathleen Q. Abernathy, Counsel for Broadband Office, to Magalie Roman Salas, Secretary, FCC, dated May 17, 2000 (enclosing news article entitled “Birth of a BLEC: Service Providers Jump at Chance to Win Over MTU (multi-tenant unit] Audience").