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CPT on FCC universal service proceeding
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INFORMATION POLICY NOTE - Universal Service Proceeding
April 12, 1996
The following are comments CPT filed with the FCC today on its
universal service docket. The proceeding touches on dozens of topics, and
CPT only provided comments on a few. We begin by asking the FCC to
eliminate the per-minute "Carrier Common Line" (CCL) charges which are now
imposed on every long distance interstate call made over the regulated
switched network. We tell the FCC that per-minute usage based charges for
network use have led to inefficient use of the public telephone network.
This discussion is fairly detailed, and controversial. The Consumer
Federation of America and Consumers Union have indicated that they may
file comments in opposition to our position during the reply period (which
ends May 3, 1996). For a view contrary to ours, contact Mark Cooper
301/384-2204 for CFA, or Gene Kimmelman (202-462-6262) for Consumers
Union.
We also discuss the need for the Commission to push the local telephone
companies to convert the current analog-digital-analog voice network to a
fully end-to-end digital network, using ISDN or other digital
technologies. In this context, we discuss problems with high prices for
ISDN.
jamie (love@tap.org, 202/387-8030)
http://www.essential.org/cpt
Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554
___________________________________
)
COMMENTS ON FEDERAL )
UNIVERSAL SERVICE )
NOTICE OF PROPOSED RULEMAKING ) CC Docket No. 96-45
AND ORDER ESTABLISHING )
JOINT BOARD ) FCC 96-93
)
To: Chief, Common Carrier Bureau )
___________________________________)
COMMENTS OF THE CONSUMER PROJECT ON TECHNOLOGY ON THE
FEDERAL UNIVERSAL SERVICE NOTICE OF PROPOSED RULEMAKING
AND ORDER ESTABLISHING JOINT BOARD
A. INTRODUCTION
1. The Consumer Project on Technology is a non-profit
organization which was started by Ralph Nader to promote the
consumer interest in matters concerning the development of new
technologies, including information technologies. For additional
information about CPT see our Web page at
http:/www.essential.org/cpt. These comments address three
issues. The need to eliminate the Carrier Common Line (CCL) per-
minute fee on long distance calls, and to move away from usage
based contributions to finance the fixed costs of the network.
Second, we discussion alternatives to usage based charges.
Finally, we emphasize the importance of using the telephone
network for digital connections to a wide area network, and the
discuss the problem of excessive prices for residential ISDN
service.
B. THE PER-MINUTE CARRIER COMMON LINE (CCL ) CHARGE SHOULD BE
ELIMINATED, AND REGULATORS SHOULD REEXAMINE THE STRUCTURE OF
ALL USAGE BASED PRICING OF LONG DISTANCE SERVICE.
2. In paragraphs 112, 113, 114 and 115, the Commission has
invited comments on the per-minute Carrier Common Line (CCL)
charge, which supports the cost of the "local loop" telephone
network. Under the CCL, a per-minute usage fee for making a
long distance telephone call is "paid" by the long distance
carriers (LDC) to the local exchange carrier (LEC),. These
payments from the LDC to the LEC reduce the monthly fixed fee for
telephone service, but only at the expense of higher long
distance charges.
3. Assuming that overall, the change will be revenue neutral,
in that the additional total revenue collected by the LECs from
new fees will be equal to the revenue lost from the elimination
of the CCL, there will be a redistribution of the cost of
maintaining the local loop. If the revenue from the CCL is
replaced by a higher Subscriber Line Charge (SLCs), which is a
fixed monthly fee, then persons who make very few long distance
calls will pay more, and persons who call more will pay less.
This is inevitable for any revenue neutral movement away from a
usage based fee, because consumers do not have identical calling
patterns. There are, of course, other alternatives that could be
considered as substitutes for the CCL, each of which would
represent a different redistribution of the cost of maintaining
the local loop. However, whatever the approach, we believe that
the elimination of the per-minute CCL charge is a necessary
action, in order to move toward a more efficient system of
pricing access to the network, and that consumers will benefit
greatly from the elimination of the CCL.
4. As of August 1, 1995, the average per minute CCL charges
were about 1.72 cents per conversation minute, and equaled
roughly 30 percent of 5.7 cents per minute for "premium" service
that the LECs charged the LDCs [Statistics of Communications
Common Carriers, Table 5.11]. Some persons estimate that the
elimination of the CCL will lead to a $2.50 increase in the fixed
monthly SLC fee. Some consumer groups have expressed opposition
to the elimination of the CCL per-minute fees, if it is replaced
with an increase in the fixed monthly fee, because persons who
make few long distance calls would be worse off, including some
low income consumers who might be deterred from having telephone
service. While we share concerns about access to the network by
the poor, we do not believe that it is necessary to maintain a
system of charging by the minute for access to the network. The
Commission has many alternative methods to reduce the costs of
network access for poor persons which do not involve charging
per-minute fees for network usage. (These will be discussed
below.)
5. We believe the elimination of the per-minute CCL fee is a
very important first step toward a more general restructuring of
the regulatory regime, which will encourage more intensive and
efficient use of the network. We believe it is appropriate to
reconsider any mechanisms which base contributions to support
fixed local loop costs on per-minute or per call charges. We
believe it is necessary to provide alternative pricing schemes
which make it possible to consider different methods of pricing
long distance services, or other new uses of the local loop, such
as the types of services that can be delivered over ISDN and
other digital connections to the home.
6. The local loop telephone network is characterized by large
fixed costs. The elements of the network which are sensitive to
the amount of network use are increasingly inexpensive to build
out, as the costs of interoffice trunkage has become cheaper, and
digital switches are deployed. Moreover, "costs" imposed by
usage of the local loop network are largely sensitive to when
usage occurs, with congestion occurring during the peak hours
between 8 a.m. and 5 p.m.
7. The long distance telephone market is also a high fixed cost
technology. Moreover, the LDCs appear to have considerable
excess capacity. According to recent reports, when Sprint
enjoyed only about 10 percent of the long distance market, it had
enough capacity to carry all long distance traffic by itself.
The total industry wide capacity for long distance service far
exceeds demand. [see the discussion from Viscusi, Vernon and
Harrington, Economics of Regulation and Antitrust, MIT, 1995,
page 495]. Long distance services provided through the public
switched network are overpriced and underutilized , particularly
during off-peak hours.
8. User charges based upon hefty per-minute fees cause
consumers to economize on their use of the network. This is
inefficient when the user charges exceed the costs which are
imposed on the network. We believe the CCL and other per minute
charges for access to the local loop do greatly exceed the
marginal costs of usage. Moreover, the LECs are actively
lobbying state regulatory commissions to support a variety of
other usage based tariffs, based upon per call or per-minute
fees. For example, Bell Atlantic, Nynex, PacBell, US West,
Ameritech (Indiana) and GTE are among companies seeking fees of
2 to 6 cents per minute or more for local calls made on an ISDN
line. These fees are an attempt by the LECs to appropriate a
portion of the value that consumers perceive from higher speed
access to the Internet. As a consequence of the high residential
ISDN tariffs, there has been very little progress toward the
conversion of the local loop to an end-to-end digital network.
9. The Internet provides an interesting contrast to the pricing
model for the local loop and the regulated distance telephony
network. Firms and non-profit organizations which provide
Internet service acquire carrier services through a variety of
channels, including both tariffed and untariffed
telecommunications services, often leased from the large LECs and
LDCs. The providers costs of obtaining carrier services and the
retail prices for Internet connectivity are highly varied. The
most common arrangement for a provider is to buy dedicated (or
shared) leased lines, which provide a certain amount of
bandwidth. Prices for these lines typically depend upon
capacity, rather than usage. At the retail level, consumers have
a wide variety of options, including services which are priced by
hour of usage, prices for blocks of usage, or flat rate plans.
The per-hour charges typically range from $3 to $1 per hour for
usage, depending upon the provider or the number of hours of
service. The flat rate plans are very popular. Indeed, AT&T
and MCI both recently announced Internet access for $19.95 per
month, for unlimited usage.
10. People who use the Internet are often astonished at how
cheap Internet access is, when compared to the regulated long
distance telephone market. It is possible to use the Internet
for a wide variety of applications, including the delivery of
voice, video and new types of multimedia presentations, as well
as the less bandwidth intensive services such as electronic mail
or Web browsing.
11. One area where the Internet suffers is congestion, which
slows the network down and degrades the performance of some
applications. Internet congestion occurs in time periods which
are apparently less predictable than for the regulated telephone
network. There are various proposals about how to address the
congestion problems. One suggestion is to create a mechanism to
charge prices for priority routing when congestion exists, while
allowing non-priority or non-congested traffic to remain
unmetered. This has not proved to be a simple mechanism to
design or administer on the Internet. There is also work on
methods of defining certain levels of service that would support
applications that require higher performance levels, which is of
interest to those who hope that the Internet can evolve into a
platform to deliver video and other multimedia products to and
from homes. What is impressive about these various Internet
initiatives is the diversity and ingenuity of approaches. There
has been little enthusiasm for the idea that a simple per-minute,
per-connection, per-message or per-byte charge should be imposed
on users, for a variety of reasons. These charges would result
in too little traffic in periods with no network congestion, and
the administrative task of measuring usage and collecting (and
redistributing) fees is assumed to be costly and complex.
12. The current controversies over ISDN pricing present many of
the same issues. Several LECs are seeking to impose very high
fees for ISDN deployment. As noted earlier, Bell Atlantic,
Nynex, PacBell, US West, Ameritech (Indiana) and GTE are trying
to impose hefty per-minute charges for making a local call over
an ISDN line. Several of these LECs claim that they are simply
trying to recover the costs of more intensive use of the network,
which requires greater inter-office trunkage and switching
capacity. None of the independent cost studies support the high
fees the LECs are seeking to charge, even for nailed up
connections. This is an extremely important issue, because it
goes to the issue of whether or not the copper wire local loop
will be used to provide digital connections to wide area
networks.
13. Several persons from the computer and software industry have
offered suggestions about how the LECs could reconfigure network
software to accommodate more intensive use of the copper wire
local loop infrastructure. Intel has told state regulators that
the LECs could design an ISDN connection so that consumers could
open a "D" channel connection, and have the software dynamically
open up "B" channels for data transfers on a as needed basis.
Since the D channel is already an open connection, this would
allow households to maintain permanent connections, but not tie
up interoffice bandwidth. We very much support movements in this
direction. Another approach, recommended by David Lesher, is
that the LECs offer "connectivity," at the central office, which
would be a digital data service, which would be routed to various
Internet Service Providers in the most efficient way. These
innovative approaches to addressing potential congestion problems
contrast with the lack of creativity by incumbent telephony
giants, who seem exclusively interested in using the issue of
potential congestion as an excuse to tax value-added information
products.
14. The per-call charges that several states are imposing for
the local loop create their own problems. With ISDN or other
digital technologies, one might consider a situation where the
"telephone calling" is controlled by the computer, and the
computer frequently connects and unconnects to various
information sources to obtain or send information. With very
high per-call charges, this becomes too expensive. At the
extreme end, users simply nail-up connections, to avoid high per
call charges. Some Bell Atlantic business consumers who face a
9.5 cents per-call charge, nail up connections for hours for this
reason. If the copper wire is to be used for digital services,
both the call and the per-minute charges present many distortions
and problems.
15. If the Commission is to assert jurisdiction over the
Internet, as has been requested by some telephone companies, then
it will be presented with enormous problems in determining how to
measure usage. If one connects to a Web page out of the local
calling area, what is the measure for the usage? The minutes
looking at the page? The minutes (seconds) transferring the
data? What happens when the network is slow, due to congestion?
Will this lead to excessive costs in trying to mirror sites in
order to avoid the usage charges? Will this create a barrier to
information for persons in rural areas?
16. If the Commission imposes per-minute, per-connection, or
per-byte usage charges on the Internet, these charges would
likely eliminate much of the free publishing which now takes
place on the Internet. The existence of vast free sources of
information on the Internet is an extremely important issue for
universal service. It is one thing to provide a device which can
connect to a network, and another thing to be able to use the
network. Poor and the middle income consumers both benefit from
have access to information services. Universal service goals are
served by policies which facilitate access to the publishing
products and other services which have flourished on the
Internet, often for free. Usage based charges would
substantially reduce the scope and availability of information
resources which are now available for free on the Internet.
17. The existence of the Internet as a platform for non-
commercial publishing and communications is important, even for
those persons who do not directly use the Internet, since many
persons are served indirectly by the Internet. For example,
Essential Information uses the Internet to provide a number of
low income grass roots community groups with access to banking
statistics and other data which is used to investigate problems
of discriminatory lending practices. While few individual
members of the group may have daily access to the Internet, their
neighborhood association uses the Internet for research purposes,
and to communicate with other neighborhood groups and national
experts. Low income students often benefit when their teachers
use the Internet to gather information for courses. There are
countless such examples. These are very important activities
that would suffer if the Commission imposed the CCL per-minute
charges on Internet communications, or imposed other mandatory
usage based contributions to the local loop.
METHODS OF SUPPORTING LOCAL LOOP COSTS AND UNIVERSAL
SERVICE FUND
18. While we oppose the CCL, and recommend that the Commission
generally move away from mandatory per-minute or per call fees
for network service, we encourage the Commission to consider a
variety of ways to enhance network access by poor persons. In
doing so, however, the Commission should consider more than the
cost of have a device in the home. Poor persons, like everyone
else, need to use the network.
19. Table one presents data on the average cost of residential
telephone bills, by quintile.
Table 1
How do Phone Bills Differ by Income?
Average Percent of
Income Monthly Toll & Average
Quintile Bill* Discretionary* Monthly Bill
Poorest 43.70 25.00 57%
2nd 48.40 29.70 61%
3rd 53.40 34.70 64%
4th 57.10 38.40 67%
Richest 70.70 52.00 74%
White $ Other 54.40 35.80 66%
Black 64.00 45.30 71%
* For 1992.
Source: SRCI
20. It is important to observe that the poorest consumers spend
57 percent of their average monthly telephone bill for toll and
discretionary services.. For blacks, the percent is 71 percent.
Focusing only on the cost of the device ignores the way that
people actually the network today.
21. We also expect that rich and poor consumers will benefit
from the next generation of information products and services,
which require much longer connections to the network, and more
intensive usage. If per-minute or per-byte type charges are
imposed, then the network will be taxing value added services,
and making many "free" value added products and services too
costly for persons who cannot pay the carrier charges. If usage
truly drove costs in a linear fashion this would not be a
problem, but there is clearly a highly non-linear relationship
between network use and network costs. Linear usage pricing
schemes will lead to extremely inefficient network usage, and
they will also create a pay-as-you go environment which will
present unneeded barriers to information services by poor
consumers, who are least able to pay usage fees. Many new
information services will then be mostly available to higher
income consumers, creating further divisions between the rich and
the poor.
22. The Commission has identified a number of different
mechanisms for collecting revenues to support the universal
service fund (USF), and these mechanism are not unlike those
which are feasible for supporting the local loop. We oppose
mechanisms which would base contributions on minutes of network
use, number of calls, or bytes of information which are
transmitted. These are all attempts to measure the consumer
willingness to pay, or value they place on the network service.
Unfortunately, these mechanisms are very imperfect measures of
even this, and cause very important barriers for the deployment
of new digital technologies, not to mention the inefficiencies
from imposing linear time-insensitive pricing schemes on a
network with time-sensitive and non-linear costs.
23. If the Commission is seeking a contribution toward joint
fixed costs or the USF which are based upon the value of the
network services that are consumed, then it should consider
contributions which are tied to the dollar value of services
which are purchased, rather than proxies such as minutes, calls
or bytes. Contributions based upon the dollar value of services
would be less harmful to efficient network usage than the per-
minute, per-byte or per call charges.
24. Another possible approach would be to charge long distance
telephone companies a fixed fee for each customer, or fraction of
customer, they serve. In a world where consumers use a single
carrier for long distance telephone calls, this is relatively
straightforward. In a world with multiple carriers for
consumers, this is a more complex, but not impossible
undertaking. The fixed fees, sometimes referred to as line
charges, should be based upon the capacity for service, not the
actual usage. This would encourage greater use of the fixed cost
network.
C. THE IMPORTANCE OF USING THE TELEPHONE NETWORK FOR DIGITAL
CONNECTIONS TO A WIDE AREA NETWORK.
25. The public telephone network is an enormously valuable
infrastructure which is vastly underutilized. The most glaring
example of this under utilization is the appalling pricing
policies by many LECs for residential ISDN service. For example,
while Bell Atlantic sell business voice ISDN service at $38 per
month, plus 9.5 cents per ball, it charges residential consumers
from 2 to 4 cents per minute to use an ISDN for a 128 Kbps data
connection. U.S. West charges 6 cents per minute or more for
residential ISDN service. PacBell, Nynex, Ameritech (for
Indiana) and GTE also rates on very high per minute charges.
These fees prevent anyone but the wealthiest consumers form using
digital technologies, like ISDN, for fast "last mile" connections
to the Internet or other services.
26. The pricing of ISDN is extremely important, because ISDN
provides the only here-and-now technology for providing most
persons with end-to-end digital network connections. Cable modem
are promising, but will not be deployed everywhere, due to
limited cable network infrastructures in many markets. The
copper wire network is the only feasible platform to provide
ubiquitous digital network connections for many years.
Regulators should not permit the LECs to hold back the future by
pricing ISDN or other digital services too high, or by failures
to reengineer the network in ways that are needed today.
27. With even a moderately fast digital platform, many new
competitive information services will be developed, as well as
many important non-commercial information services. Tele-
medicine, distance learning and other important applications need
more bandwidth into the home. It is a national disgrace that
residential users are still buying analog modems, when ISDN
technology has been sitting on the shelf for years.
28. The LECs complain that if they allow consumers to have
access to ISDN technology they will face congestion problems.
There is no evidence to date that ISDN users have caused any
congestion use. However, even more important is the failure of
the LECs to move toward simple modifications of network software
that would solve most potential congestion problems before they
occur.
29. Intel and other computer and software experts are urging the
LECs to reengineer network software to so that ISDN users could
maintain open connections over the already open D channels, and
dynamically and instantly open B channels on a as-needed-basis
for data transfers. Under this system, an open connection would
transmit low bandwidth data, such as electronic mail or signaling
information, over the D channel, which causes no congestion over
the current infrastructure, the interoffice trunkage would
easily accommodate huge numbers of full time connections. It is
painfully obvious that this is the direction in which the network
needs to migrate.
30. Several independent studies suggest that the costs of
upgrading POTS lines are less than $4 per month. It is
outrageous that the LECs are permitted to charge consumers
several multiples of this for an ISDN connection. We agree with
Bill Gates of Microsoft that it is extremely important to bring
down ISDN pricing, and we agree with Microsoft and Intel that
residential ISDN service should be priced much closer to POTS.
April 12, 1996
Sincerely,
/s/
James Love
Director
Consumer Project on Technology
http://www.essential.org/cpt
voice: 202/387-8030; fax 202/234-5176
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