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Update on ISDN
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TAXPAYER ASSETS PROJECT - INFORMATION POLICY NOTE
March 15, 1995
- House Telecom bill (hr 1555) will be marked-up in subcommittee
(subcommittee memembers will vote on various amendments) on
Wednesday, March 17, 1995. Background notes on ISDN issue
attached below. james love (love@tap.org).
Background Notes on
ISDN (Integrated Services Digital Network)
and telephone rates
Ad Hoc Coalition for Low Cost ISDN
May 15, 1995
1. ISDN is a mature technology which allows a telephone company to
configure a telephone line to transmit digital data at high
speeds. With standard analog telephone lines (sometimes referred
to as POTS), the fastest modem connections to computer networks
operate at 28.8 kilobytes per second. Using ISDN technology, a
telephone can connect to a network at 128k per second. The higher
speeds allow users to transmit data much faster, and to use
telephone networks to transmit multimedia applications, including
low grade video transmissions. Interest in ISDN technology has
expanded greatly in the past year, as the use of the Internet's
World Wide Web (WWW) has become more popular. The highspeed ISDN
connections give users the "bandwidth" to download graphics and
sound files much faster, making the WWW much more pleasant to use.
2. ISDN lines require the use of special hardware in the customer's
home, plus some changes in the way the lines are routed by the
telephone company. The cost of customer premises equipment vary
according to configurations, typically costing more than $100 (and
can run several hundred dollars for special uses of the
technology.)
The most important public policy debates concern the monthly cost
of the ISDN lines. Studies of the "marginal" or "incremental"
cost of providing ISDN services vary greatly, depending upon who
is paying for the study. For example, in a 1993 study by the
Tennessee Public Service Commission (TPSC), South Central Bell
Telephone Company (SCB) estimated that the "incremental cost" of
ISDN service (over and above the cost of POTS) is $36.33 (per
month) for residential customers. But the TPSC's own calculations
were only $9.77 (per month). In an earlier 1991 study, the
Massachusetts Department of Public Utilities (MDPU) found that the
"marginal cost" of ISDN service was $7.40 (per month) over the
cost of POTS service. In studies for the Consumer Federation of
America (CFA), Mark Cooper has estimated the marginal cost of an
ISDN service (over the cost of POTS) to be $2 to 4 per line (per
month), and falling.
3. Telephone companies and consumers have different ideas about how
ISDN should be priced. Telephone companies want to price the
service on the basis of the "value" of the service, based upon its
higher functionality. Consumers would prefer to pay prices based
upon the actual cost (including reasonable profit on investment)
of the service.
If local telephone exchange service becomes a competitive market,
competition among providers may lead to lower prices based upon
the costs of providing the service. However, in most markets
today local exchange telephone service is a monopoly, and even
with legislation that removes legal barriers to entry, some
markets may not have much or any competition for several years,
because of economic barriers to entry.
4. The Ad Hoc Coalition for Low Cost ISDN service supports transition
rules, that will apply to markets until competition for local
exchange services actually occurs. Specifically, the Ad Hoc
Coalition would require the incumbent telephone company to offer
ISDN service priced no more than POTS, plus the incremental cost
of ISDN. This requirement would hold until "actual substantial"
competition occurred in the market for local telephone service.
Thereafter prices would be set by the competitive market.
Language that would accomplish this is given below:
(xx) A common carrier providing local exchange telephone service
that is the dominant carrier and that provides ISDN service
to residential subscribers and small businesses shall make
such a service available to the public for the price of a
voice grade line plus no more than the incremental cost of
providing the ISDN service. This requirement shall expire
when the Commission determines that the common carrier faces
actual substantial competition for local exchange services in
the residential market.
5. The Ad Hoc Coalition position is consistent with the so called
"open platform" language included in last year's HR 3636 (103rd
Congress), which would have required carriers to provide a digital
service priced at cost.
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