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Re: cost of residential ISDN
In a message dated 96-01-15 18:35:37 EST, firstname.lastname@example.org writes, with
regard to James Love's previous letter:
>What's variable cost in a telco setting? Certainly the time the telco
>staff spends talking on the phone to help customers, the extra
>electrical power needed for equipment which is actively working instead
>of being in idle mode - and some other small items.
>>I was also recently told of a cost study of residential POTS which
>>indicated that fixed costs were about 93 percent of the total, and
>>variable costs were about 7 percent. If this is right (and maybe a
>>different number is better)...
> This sounds reasonable. But
>>then every $1 (per month) in the POTS
>>tariff would cover a 100 percent increase peak load capacity of the
> I just don't see how this follows. Where does it come from?
>>This would suggest that the Consumer Federation of
>>America's estimate of $4 per month as the incremental cost of upgrading
>>residential POTS to ISDN is quite reasonable
I agree with Henry. Properly calculated, the incremental cost of ISDN is
very site-specific and has to do with the condition of lines and switches.
In many areas, the upgrade facilities costs will be zero (since the work has
been done) or common to other services (which also require the upgrades).
Although I accept the CFA estimate as an average order of magnitude, you
cannot derive the incremental cost from a "fixed/variable" ratio related to
services generally. You need access to company-generated data, which is
generally subject to protective orders.
Some ISDN subscribers will use the network very intensely, even
24-hours-a-day. In modern areas, the only significant costs will be
usage-related. Usage, while cheap, is not free. Very heavy users push up
the average service incremental costs. Therefore, results will depend on how
the study is averaged. For example, a residential ISDN study might yield
lower usage costs than a business study. Alternatively, ISDN usage might be
costed separately (per minute) or a high-usage class established. This would
create a very low subscription price with a per-minute charge or package.
The per minute charge would be much less than those currently proposed.
There is a more basic point here. Many jurisdictions are under price-cap
regulation, which was promised to produce great innovations. However, ISDN
service is not necessarily classified as "basic" in all of these plans. In
some (but not all) schemes, ISDN is deemed "discretionary," and the telco is
given flexiobility to charge more than costs. This is not appropriate,
because ISDN is a monopoly and the very type of innovation that regulatory
reform was supposed to promote, not restrict. Politically, it should be
unacceptable to have ISDN priced on any basis other than contribution
neutrality. That is to say, incremental revenues from the service should
equal incremental costs. Otherwise, the telco is getting a windfall from
having withheld an essential monopoly service.