THE RURAL BROADBAND CONNECTION – WILL THE HINTERLAND DRIVE BROADBAND? THE REGULATORY CONTEXT

1. THE RURAL BROADBAND CONNECTION – WILL THE HINTERLAND DRIVE BROADBAND?THE REGULATORY CONTEXT Stefan M. Lopatkiewicz, Esq.Dorsey & Whitney LLPWashington, D.C.

2. THE TELECOMMUNICATIONS ACT • Establishes goal of broadband (“advanced”) telecommunications and information services for all sectors of country, including rural communities • Section 254, Universal Service • Includes “access to advanced telecommunications and information services … in all regions of the Nation” • “Consumers in all regions . . . including . . . rural . . . areas” should have access to advanced services “reasonably comparable” to those provided in urban areas and at “reasonably comparable rates”

3. THE TELECOMMUNICATIONS ACT (cont’d) • Section 706, Advanced Telecommunications Incentives • The FCC and each state PUC shall “encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans” • Defined, “without regard to any transmission media or technology, as high-speed, switched, broadband telecommunications capability that enables users to originate and receive high-quality voice, data, graphics and video telecommunications”

4. THE TELECOMMUNICATIONS ACT (cont’d) • Section 309(j), Use of Competitive Bidding • When using auctions to award spectrum licenses, Commission should establish a “competitive bidding methodology” to • promote development and rapid deployment of “new technologies, products and services” for the benefit of the public, including rural area residents • assure “new and innovative technologies” are accessible through dissemination of licenses among a wide variety of applicants, including “rural telephone companies”

5. PRINCIPLE OF COMPETITIVE NEUTRALITY • In its implementation of the universal service statute, the FCC has adopted the principle of “competitive neutrality” • In defining advanced telecommunications services, FCC recognizes satellites as a potential provider • Focus of Commission in recent years on broadband for rural communities, however, has been on terrestrial delivery means, rather than satellites

6. IMPACT OF COMPETITIVE BIDDING RULES • One reason for this has been substantial attention paid to implementing the rural directives of Section 309(j) • Small business bidding credits • Denial of special credit for rural telcos • Designation of various sizes of geographic areas for spectrum licenses • Geographic partitioning and spectrum disaggregation • Special construction performance requirements

7. FCC CONCERN WITH SATELLITE CAPABILITIES • Advanced services defined as providing greater then 200 Kbps both upstream and downstream • In its 2000 Order, the FCC determined availability of advanced services is highly correlated to population density • Though geographically “pervasive,” no existing satellite service met definition of advanced services due to inability to provide upstream capacity

8. FCC CONCERN WITH SATELLITE CAPABILITIES (cont’d) • Focused on encouraging facilities-based competition on middle mile, last mile and last 100 feet • collocation rules • unbundling and resale of advanced services • line sharing for DSL • removed eligibility restrictions for rural LMDS • over-the-air reception devices (OARD) rule

9. CONTINUING FOCUS ON TERRESTRIAL SOLUTIONS • “Great disparity” in access for rural communities still seen in 2002 Order • Satellite services growing, but none yet meets advanced services definition • “New generation” (Ka-Band) of satellites is seen as potential significant provider due to broad coverage

10. CONTINUING FOCUS ON TERRESTRIAL SOLUTIONS (cont’d) • FCC encouragement of new services remains focused on terrestrial since 2000 • 700 MHz clearance • 3G spectrum • Inclusion of fixed wireless in OARD • Advanced wireless service (actually took spectrum from MSS) • Award of additional Ka-Band licenses (not recognized in 2000 Order) • Possible removal of restrictions on ancillary use of DBS spectrum

11. CONTINUING FOCUS ON TERRESTRIAL SOLUTIONS (cont’d) • Planned activities are focused on encouraging cable deployment and freeing ILECs from regulatory constraints • Cable Modem NOI • Broadband NPRM • Incumbent LEC Broadband Services • UNE Triennial Review

12. POTENTIAL FOR UNIVERSAL SERVICE SUPPORT • FCC is not convinced rural communities can gain comparable access to advanced services through market mechanisms alone • Is now considering whether advanced services should be included in “core services” for universal support purposes • This is an argument rural telcos have been making for some time

13. RURAL SPECTRUM-BASED SERVICES NOI • FCC’S preoccupation with terrestrial wireless applications is reflected in new NOI issued in December 2002 • NOI recognizes that satellite services “may, in the future, play a critical role in bringing telecommunications services to rural America” • But only asks for public input on terrestrial wireless services and how regulatory obstacles to them can be relieved

14. RURAL SPECTRUM-BASED SERVICES NOI (cont’d) • Could serve as vehicle for telephone coops to secure reconsideration of attribution rule that makes it difficult for them to qualify for small business credits • Also could be an opportunity for FCC to respond to Sen. Baucus legislative initiative last year to clarify 309(j) • Make it easier for rural providers to compete for spectrum • Enforce monitoring of rural build-out requirements

15. OTHER LEGISLATIVE INITIATIVES • Farm Security and Rural Investment Act of 2002 • Five-year Department of Agriculture program encouraging deployment of broadband services through loans and guaranties • Technologically neutral, but who is using?

16. OTHER LEGISLATIVE INITIATIVES (cont’d) • Broadband Internet Access Act (proposed) • Would amend Internal Revenue Code to permit expensing of equipment delivering current or next-generation broadband services to rural areas • Satellite providers and lessees are eligible, but launch costs are excluded • Would establish five-year window within which to inaugurate service

17. CONCLUSIONS • Regulatory framework is officially neutral regarding delivery of broadband services to rural areas • As a practical matter, numerous support mechanisms and incentives exist which could favor terrestrial wireline and wireless solutions in the near term • FCC has exhibited relative indifference to the role of satellites in filling this niche