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Re: cost of residential ISDN

  In a message dated 96-01-15 18:35:37 EST, hes@unity.ncsu.edu 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.