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ISDN Appeal in Maryland

  Info-Policy-Notes - A newsletter available from listproc@cptech.org
  July 6, 1997
           CPT's ISDN Tariff Appeal in Maryland
  CPT has been active in a number of state ISDN tarff proceedings over the
  past couple of years. This is a copy of an appeal we just filed in the
  Maryland proceeding, where a hearing examiner recently issued an opinion
  which gave little if any consideration to the positions presented by CPT
  or the Maryland Office of People's Counsel (OPC).  The Maryland proceeding
  involves the Bell Atlantic (BA) so-called "call pack" tariffs.  The "call
  pack" system has the consumers pre-pay larger blocks of usage at lower
  rates, or face very high per minute charges for usage that exceeds the
  call pack option.  One of the way that Bell Atlantic inflates their costs
  is by estimating that consumers will use 90 percent of their pre-paid
  usage each month, with no high priced overage.  The ratio of actual use to
  usage purchased is called the "fill rate."  CPT believes the actual
  average fill rate is far lower than 90 percent.  Indeed, it is hard to
  believe that consumers will buy prepaid packages that conform almost
  exactly to actual usage month after month.  CPT has asked the Maryland PSC
  to calculate rates using a 30 percent fill rate, or to have Bell Atlantic
  provide the Maryland PSC with actual fill rates over the past several
  months.  In discovery in the Maryland and New Jersey cases Bell Atlantic
  refused to provide CPT with fill rates for each ISDN call pack, but BA has
  provided overall data in one proceeding which is suggests the 90 percent
  assumption used by the Maryland Hearing Examiner is absurd.  If the
  Maryland PSC makes an adjustment for this item alone, Maryland consumers
  may be able to purchase very large usage allowances (more than dial-in
  users would need) for less than $30 per month. 
      James Love <love@cptech.org>  202.387.8030
                           Before the
                          Case No. 8730
  In the Matter of the Residential   )
  Intellilinq BRI Service Offering   )    Case No. 8730
  of Bell Atlantic, Maryland, Inc.   )
  1.   Introduction.
       The Consumer Project on Technology appeals the Proposed
  Order of the Hearing Examiner (POHE) in Case No. 8730,
  regarding residential ISDN rates in Maryland.  The central
  issue raised in this appeal is that the hearing examiner
  erred by permitting Bell Atlantic (BA) and staff to assume
  unrealistic and empirically refutable assumptions regarding
  the amount of Callpack pre-paid usage that consumers
  actually use in a given month.  This is referred to as the
  Callpack "fill rate."  As discussed by CPT's expert Fred
  Goldstein, BA's assumption of an average 90 percent Callpack
  "fill rate," given the proposed penalties for overuse, is
  completely unreasonable.   This means that BA assumes
  customers will use 90% on average of whatever Callpack
  option they purchase and the price charged by BA is hinged
  upon this erroneous assumption.  CPT presents a simple
  modification of this assumption which lowers staff estimates
  of usage costs by 70 percent for each Callpack option.  In
  the event that the Commission is reluctant to specify the
  proper adjustment, based upon the record before the
  Commission, CPT asks that the Commission order an adjustment
  based upon the fill rate for each Callpack option over the
  past six months.  This information is available and it is
  unreasonable to use BA's fanciful assumption of 90% rather
  than either the actual fill rate or a more rational assumed
  fill rate.  CPT also raises a number of additional
  objections to the proposed order.
       With regard to usage costs, CPT strongly urges the
  Commission to reject the Bell Atlantic analysis, which is
  based upon an average cost pricing model, and which does not
  reflect the enormous economic efficiencies from greater off-
  peak usage of the network.
       CPT objects to the treatment of loop expenses.
  Specially, CPT objects to the POHE's decision to allocate 90
  percent of loop expenses to residential ISDN service, on the
  grounds that the 10 percent not allocated to residential
  ISDN service represents an inadequate contribution to the
  loop from long distance calls, features and other services
  provided over the local loop.  CPT asks that loop costs be
  based upon the Office of People's Counsel recommendation of
  $18 per month.
       CPT believes the POHE does not accurately reflect the
  record of the proceeding.  For example, the POHE errs in
  omitting the name of one of the two CPT witnesses.  Mr.
  Love's testimony is left off the list of witnesses on page
  4.   And this seems far more than just a typographical error
  because the POHE does not address any of the central themes
  presented by Mr. Love or Mr. Goldstein in testimony before
  the Commission.
       The POHE's discussion of other state ISDN tariffs is
  incomplete and unbalanced.  Completely ignored is Mr. Love's
  analysis.  The POHE repeats the errors of Ms. Dean's
  testimony, without any recognition of CPT's criticism of Ms.
  Dean's survey of state ISDN tariffs.  POHE also presents
  baseless and incorrect assertions by BA as if they have a
  factual basis.
  2.   Usage Costs
       OPC's witness testified that the Bell Atlantic usage
  costs were derived from an average cost pricing model.  As
  we have stated repeatedly, it is inappropriate for Maryland
  regulators to use average cost pricing models, based upon
  historic POTS traffic, to set rates for data services where
  a far greater percent of usage falls in off peak hours, when
  it is essentially costless to use the network.
       The fact that off-peak usage does not consume economic
  resources is why many state commissions have set call-packs,
  flat rates or flat rate options far lower than is
  recommended by the POHE.   This was a major point of Mr.
  Love's testimony, which the POHE never addressed.  In
  addition to Mr. Love's testimony in this proceeding, CPT
  urges the Commission to take notice of the January 10, 1997
  Report and Order by the Public Service Commission of Utah.
  (Attachment 1, Docket No. 95-049-T20).  In this Order, the
  Utah PSC set a flat rate for ISDN (without features) at $64,
  about one third the rate recommended by the POHE, and just
  $10 more than the 200 hour option.   The $10 difference
  between the 200 hour call pack option and the flat rate pays
  for an additional usage allowance of 1,245 hours per month.
  This works out to less than 1 cent per hour.  The reason
  that the Utah PSC has such a small differential between the
  200 hour call pack and the flat rate option is that off-peak
  usage is essentially costless.  CPT believes the POHE
  ignored its testimony and briefs on this point, and as a
  result, it proposes excessive rates for its flat rate
  option.  This point would be even more clear if the POHE had
  reported the many under $60 or under $35 per month flat rate
  tariffs in its analysis, rather than simply quoting from Ms.
  Dean's biased and selective flat rate tariffs, which omitted
  flat rate tariffs from Michigan, Ohio, Wisconsin, Illinois,
  Tennessee, California (Roseville), Arkansas (NATCO) and
  Texas, as well as proposed flat rates current on appeal in
  New Mexico and Delaware [page 19].
       The problem with an average cost pricing model based
  upon voice POTS calls is that after a certain point of
  usage, the call must be using off peak network resources.
  For example, suppose a consumer actually used 140 hours of
  service in one month.  That is 4.67 hours per day, on
  average.  The 300 hour call pack option covers 10 hours per
  day, on average.  Any reasonable analysis would conclude
  that this takes the customer out of the range of voice
  calling patterns - and because of the greater use of off-
  peak calling, it should reflect lower average costs.
       However, even based upon this fundamental problem with
  the usage cost analysis, it is useful to examine the record
  in this proceeding.   The staff presented the boundaries for
  usage costs, based upon FCC's publicly reported high and low
  estimates of usage costs.  The POHE reports the OPC claims
  that 2B usage costs are $.007, thus the 1B cost would be
  $.0035.  BA is seeking $.02 peak and $.01 off-peak - between
  2.5 and 10 times the FCC's estimates of average costs.
  However, for the Callpack Option, BA is pricing the service
  at $.0063 to $.0023 per minute, depending upon the Callpack.
  If one looks at the incremental usage costs of the various
  Callpack options, then BA is pricing usage at $.0031 per
  minute for the incremental usage between the 60 and the 140
  Callpack ($15 for 80 an additional hours of usage), or
  $.0023 for the incremental usage between the 500 hour and
  the flat rate options.  ($129  for an additional 945 hours).
       The Staff usage costs reflect Ms. Ann Dean's
  adjustments for excessive charges, and should be given even
  more weight by the Commission than BA's self serving
  analysis. Each and every one of Ms. Dean's Callpack usage
  figures is less than $.003 per minute.  For every Callpack
  except for the 20 hour and the flat rate, Ms. Dean uses
  $.0027 to $.0028 per minute.  For the incremental cost of
  the Flat Rate option Ms. Dean uses $.0017 per minute, or
  $.104 per hour -- lower than the other callbacks, but still
  about 13 times higher than the $.008 per hour used by the
  Utah Commission.
                          Table 1
                    Usage Cost Estimates
                                 Per minute       Per hour
  High FCC                          $0.0020         $0.120
  Low FCC                           $0.0040         $0.240
  OPC                               $0.0035         $0.210
  BA Standard Peak                  $0.0200         $1.200
  BA Standard Off-peak              $0.0100         $0.600
  Average BA Callpack Rates
  BA CP 20                          $0.0063         $0.375
  BA CP 60                          $0.0060         $0.358
  BA CP 140                         $0.0043         $0.261
  BA CP 300                         $0.0037         $0.222
  BA CP 500                         $0.0032         $0.193
  BA 1445 - Flat                    $0.0026         $0.156
  Incremental BA Callpack Rates
  BA CP Incremental  - 140          $0.0031         $0.188
  BA CP Incremental - 1445          $0.0023         $0.137
  Average Staff Callpack Rates
  Staff CP 20                       $0.0025         $0.150
  Staff CP 60                       $0.0028         $0.167
  Staff CP 140                      $0.0027         $0.164
  Staff CP 300                      $0.0027         $0.163
  Staff CP 500                      $0.0027         $0.162
  Staff 1445 - Flat                 $0.0021         $0.124
  Incremental Staff Callpack Rates
  Staff CP 20                      $ 0.0025         $0.150
  Staff CP 60                      $ 0.0029         $0.175
  Staff CP 140                     $ 0.0027         $0.163
  Staff CP 300                     $ 0.0027         $0.163
  Staff CP 500                     $ 0.0027         $0.160
  Staff 1445 - Flat                $ 0.0017         $0.104
  The POHE correctly observes that BA did not present any
  evidence supporting the very high 1 to 2 cent per minute
  usage charges for calls outside the Callpack, and it should
  be noted that the much lower Callpack usage rates present a
  more reasonable rate.  This would be true even if the
  Callpack rates were divided by .9, the percentage fill rate
  estimated by BA and Ms. Dean.  However, the Commission
  should recognize, that if it requires BA to use a more
  reasonable usage rate, based upon the 140 hour call pack, it
  will mostly eliminate the need for the call pack options
  altogether.  This is simply because users will be better off
  without a Callpack, as long as their actual usage is less
  than the Callpack option, once the punitive 1 to 2 cent per
  minute rates are eliminated, as has been proposed by the
  POHE.   Moreover, the usage rate which is then used
  effectively becomes the relevant tariff for most ISDN users.
  For this reason, we request a remand on what the appropriate
  usage rate should be.  The POHE itself admits that there is
  no record for the BA proposal for 1 to 2 cents per minute.
  If BA agrees to the usage fee of less than $.003, which Ms.
  Dean uses,  then a remand may not be necessary on this point
  alone.  But if BA asks for a usage rate above $.004, the
  outer bound given by the FCC and presented by Staff, there
  needs to be a remand on this number.
  3.   Callpack Fill Rates
       As indicated above, CPT is extremely concerned about
  the BA and staff use of the assumption that consumers use 90
  percent, on average, of the Callpack pre-paid usage.  This
  is an unreasonable assumption for many reasons.  Who among
  us would use expect usage that differed by only 10 percent
  per month - the consistency necessary to estimate a 90
  percent fill rate?  (See Fred Goldstein's testimony).   CPT
  believes the average fill rate is far different than the
  expected fill rate presented by BA and staff.  Moreover, CPT
  believes BA can easily present the Commission with the
  average fill rates for each call pack option.  CPT believes
  the actual fill rate may be in the neighborhood of 30
  percent, but we do not know what the actual fill rate is for
  each option.  CPT asks the Commission to adjust the rates
  downward to reflect the actual fill rates, based upon
  evidence from current Callpack customers.
                          Table 2
     Call Pack Usage Costs based upon 100 Percent Fill
                 FCC low   FCC high     Staff       Staff
  Call            $0.002     $0.004   $0.0030     $0.0019
      20           $2.40      $4.80     $3.60       $2.28
      60           $7.20     $14.40    $10.80       $6.84
     140          $16.80     $33.60    $25.20      $15.96
     300          $36.00     $72.00    $54.00      $34.20
     500          $60.00    $120.00    $90.00      $57.00
    1445         $173.40    $346.80   $260.10     $164.73
                          Table 3
     Call Pack Usage Costs based upon  90 Percent Fill
                 FCC low   FCC high     Staff       Staff
  Call            $0.002     $0.004   $0.0030     $0.0019
      20           $2.16      $4.32     $3.24       $2.05
      60           $6.48     $12.96     $9.72       $6.16
     140          $15.12     $30.24    $22.68      $14.36
     300          $32.40     $64.80    $48.60      $30.78
     500          $54.00    $108.00    $81.00      $51.30
    1445         $156.06    $312.12   $234.09     $148.26
                          Table 4
     Call Pack Usage Costs based upon 30 Percent Fill
                 FCC low   FCC high     Staff       Staff
  Call            $0.002     $0.004   $0.0030     $0.0019
      20           $0.72      $1.44     $1.08       $0.68
      60           $2.16      $4.32     $3.24       $2.05
     140           $5.04     $10.08     $7.56       $4.79
     300          $10.80     $21.60    $16.20      $10.26
     500          $18.00     $36.00    $27.00      $17.10
    1445          $52.02    $104.04    $78.03      $49.42
  Rates based upon 30 percent fill rate and OPC's adjusted
  loop costs
       To illustrate what reasonable rates would be, we have
  used the OPC's $18.50 adjusted loop costs, and the FCC and
  staff usage costs, with an assumption of a 30 percent fill
  rate, which we believe is more reasonable.  The Staff usage
  costs are based upon the Staff's average rates for 140 hour
  Callpack and the flat rate option, adjusted for the 90
  percent fill rate assumption used by BA and the Staff.
                          Table 5
  Tariffs based upon OPC adjusted loop at $18.50, FCC and
   Staff Usage Costs, and 30 Percent Call Pack Fill Rate
                   FCC     FCC high       Staff     Staff
  Call          $0.002       $0.004     $0.0030   $0.0019
      20        $19.22       $19.94      $19.58    $19.18
      60        $20.66       $22.82      $21.74    $20.55
     140        $23.54       $28.58      $26.06    $23.29
     300        $29.30       $40.10      $34.70    $28.76
     500        $36.50       $54.50      $45.50    $35.60
    1445        $70.52      $122.54      $96.53    $67.92
  4.   Errors in the Record
       The POHE is not a balanced document.  Not only does it
  ignore CPT's analysis in the case, it dismisses the CPT
  recommendations as "very dubious" (page 23), while it
  reports as fact many unsupported assertions made by BA.  For
  example, the POHE reports Bell Atlantic's assertion that
  NATCO's flat rate ISDN rate of $17.90 is a "loss leader,
  since it made a substantial profit on long distance calls by
  ISDN customers to Internet Service Providers," (page 19) as
  fact.  But this is simply untrue.  NATCO subscribers access
  their Internet Service Provider via local toll free calls.
  In fact, the total cost of NATCO's flat rate 2B ISDN service
  and flat rate Internet service is $40 per month, for both
  services combined.  CPT presented testimony during the
  hearing that NATCO reported that the $17.90 flat rate for
  ISDN was profitable, but the Hearing Examiner struck this
  from the record.
       The Hearing Examiner also refused to allow an exhibit
  which was an NRRI cost study for ISDN in Tennessee, even
  though Ms. Dean misrepresented facts from that very study
  regarding loop costs, and the exhibit was needed to set the
  record straight.  Now the POHE says that there is no record
  to support an allocation of loop costs for ISDN, an issue
  specifically dealt with in the excluded exhibit.  Moreover,
  the OPC did not ask to exclude the loop, as was stated in
  the POHE.  The OPC wanted to adjust the loop in the same way
  that residential POTS lines are adjusted.  This is CPT's
  recommendation as well.
       Ms. Dean also misrepresented information on the
  California ISDN tariff proceeding, and CPT was not permitted
  to provide an exhibit which corrected that error. This issue
  itself provides an important insight to the Maryland ISDN
  hearing and the accuracy of the POHE.  The California PUC
  decided to tariff residential ISDN for less than $30 per
  month, with a 200 hour usage allowance.  (Attachment 2)
  This was very close to the CPT recommendation for Maryland,
  which the hearing examiner dismissed as "very dubious."
       Finally, we regret the POHE did not move BA in the
  direction of more constructive steps to deal with data
  calls, such as always-on-ISDN, the new Nortel and Lucent
  data transport switches, or other approaches that are needed
  to provide residential digital data connections to the
       CPT believes the POHE is demonstrably incorrect in
  several areas as discussed above.  The common strain
  throughout the document is one of deference to
  unsubstantiated and often inaccurate assumptions made by
  Bell Atlantic, while evidence provided by CPT as well as
  OPC, either refuting Bell Atlantic or pointing out that the
  proposed rates are based upon inaccurate assumptions or a
  total lack of data, are ignored.  The public interest
  requires that the Maryland Public Service Commission approve
  reasonable ISDN rates based upon actual costs incurred by
  Bell Atlantic.  The POHE does not provide such rates.
       CPT respectfully requests that its proposed rates be
  adopted as follows:  1.  A Virtual Flat Rate allowing for
  200 hours of off-peak 1B usage for under $30; or 2.  If BA's
  Callpack system must be used, the tariff should be based
  upon the OPC recommended $18.50 loop cost plus the Staff
  usage rates from table 5 (using the $.003 usage for
  Callpacks up to 140 hours, and the $.0019 usage for
  Callpacks over 140 hours), plus a 30% fill rate, which
  yields the following rates:   20 Hours - $19.58; 60 Hours -
  $21.74; 140 Hours - 26.06; 300 Hours - $28.76; 500 Hours -
  $35.60; Flat Rate - $67.92 (See Table 5).
                      Respectfully Submitted:
                      July 3, 1997
                      Todd J. Paglia
                      Staff Attorney
                      Consumer Project on Technology
                      PO Box 19367
                      Washington, DC 20036
                      (202) 387-8030
                     Certificate of Service
       I, Todd Paglia, hereby certify that the foregoing
  Notice of Appeal of the Consumer Project on Technology was
  served on the parties on the 3rd of July, 1997, by U.S.
                                Todd J. Paglia
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