12-14-2015 Council Packet - Laserfiche WebLink

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D. 621 Order — Impact of Build -out Requirements on Competition and Consumers The FCC has concluded that in many cases, build -out requirements "deter competition and deny consumers a choice." 621 Order at ¶ 37. Additionally, build -out mandates may also directly contravene the goals of Section 706 of the Telecommunications Act of 1996, which requires the FCC to "remov[e] barriers to infrastructure investment" to encourage the deployment of broadband services "on a reasonable and timely basis." Id. at ¶ 41. The FCC has recognized that "build -out issues are one of the most contentious between LFAs and prospective new entrants, and that build -out requirements can greatly hinder the deployment of new video and broadband services." 621 Order at 1131. According to the FCC large incumbent local exchange carriers ("LECs"), "view build -out requirements as the most significant obstacle to their plans to deploy competitive video and broadband services." Id. While an incumbent LEC already has telecommunications facilities deployed over large areas, it still must upgrade its existing plant to enable the provision of video service, which often requires a significant investment of capital. Id. at ¶ 38. The FCC also found in its 621 Order that build -out requirements can substantially reduce competitive entry." Id. at ¶ 32. According to the FCC, Build -out requirements can deter market entry because a new entrant generally must take customers from the incumbent cable operator, and thus must focus its efforts in areas where the take - rate will be sufficiently high to make economic sense. Because the second provider realistically cannot count on acquiring a share of the market similar to the incumbent's share, the second entrant cannot justify a large initial deployment. Rather, a new entrant must begin offering service within a smaller area to determine whether it can reasonably ensure a return on its investment before expanding. 621 Order at ¶ 35 (Footnotes omitted). Therefore, Due to the risk associated with entering the video market, forcing new entrants to agree up front to build out an entire franchise area too quickly may be tantamount to forcing them out of -- or precluding their entry into -- the business. 621 Order at ¶ 35 (Footnotes omitted). In analyzing the impact of build -out requirements on consumers, the FCC found that in many cases it adversely affects consumer welfare. 621 Order at 1136. The Department of Justice commented that "imposing uneconomical build -out requirements results in less efficient competition and the potential for higher prices. Id. Non- profit research organizations the Mercatus Center and the Phoenix Center each concluded that build -out requirements imposed on competitive cable entrants only benefit an incumbent cable operator. Id. Historically, the greatest difference in pricing occurred where there was wireline 7