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The Cost of ISDN vs. the cost of Social Engineering

  Since I know how much you love my writing, I thought I'd attach the
  following essay, which ran as my regular Op-Ed column in today's issue of
  I'm please to see that we've found ourselves on the opposite sides of yet
  another issue.  If you didn't exist, I would have to invent you <g>.
  Bill Frezza
  Carping about proposed ISDN rate hikes has become all the rage.  It's also
  creating a growing synergy between computer professionals who understand
  ISDN's pivotal role in the growth of the industry and die-hard
  public-policy advocates grasping at any opportunity to extend the life of
  tottering regulatory regimes.  But such an alliance is fraught with danger.
  Irate technologists should think twice before jumping into bed with
  Naderite social engineers, who may help win this battle at the cost of
  losing the war.
  The most recent brouhaha was kicked off by an apparent betrayal by those
  regional Bell companies that had been the most aggressive in deploying
  ISDN.  Chief among them is Pacific Bell, who, aided by the most reasonable
  ISDN prices in the land, doubled its number of installed ISDN lines in the
  past ten months.
  Unfortunately, PacBell's original forecasts of the number of users that
  would be located more than three miles from a central office were grossly
  out of whack.  Rather than 12 percent, as estimated in its provisional
  tariff filing, distant users jumped to an astonishing 30 percent .  I guess
  all those yuppies that moved out to the 'burbs are finding it tedious to
  check their stock portfolios using "old fashioned" 28.8 kilobit-per-second
  Supporting distant users requires additional loop electronics, a cost
  PacBell hadn't rolled into its original calculations.  So, how about
  charging a higher installation fee for remote users?  Nope.  Differential
  pricing violates a fundamental regulatory tenant under which city dwellers
  are gouged to subsidize suburban and rural users.  Fixing the "problem",
  therefore, requires a rate hike for all.
  In what PacBell surely views as an opening shot in a protracted
  negotiation, they proposed bumping ISDN charges up to $1.25 per hour per B
  channel.  Similar moves are rippling though US West and Bell Atlantic,
  which remain exceedingly wary of flat-rate usage schemes that might
  encourage users to nail up connections permanently.  These tariffs would
  make ISDN as prohibitively expensive as, say, America Online or CompuServe.
  The Consumer Project on Technology (CPT), a Ralph Nader-backed
  organization, would have you believe that this charging scheme is a dire
  threat to democracy.  In a blizzard of state public-service commission
  filings, CPT won the hearts of industry technophiles who are ready to join
  forces with anyone trying to block these ill-timed increases.  Even
  venerable Intel Corp. weighed in, arguing before the Washington State
  Utilities and Transportation Commission that US West should not be allowed
  to hike rates since it would hurt Intel's efforts to sell multimedia
  The heart of the CPT argument is that it is evil for phone companies to set
  prices based on "value" (i.e., willingness to pay) rather than "cost."
  CPT's solution?  Give an administrative law judge extraordinary powers to
  set ISDN prices!
  Just stop for a minute and imagine Andy Grove teaming up with Ralph Nader
  to argue that prices should be set by costs and not value.   I wonder what
  a judge would chose as a "just and reasonable" price for a Pentium chip?
  Whether you believe in free markets or not, cost-based tariffing is
  fundamentally flawed because it is impossible to construct meaningful cost
  models within the regulated Bell businesses.  It's like asking a steel mill
  in the old Soviet Union what it "costs" to make steel.  With so many
  bizarre cross subsidies, twisted accounting practices, and distorted
  allocation procedures, determining "costs" is nothing but an enormous shell
  The long-term remedy, of course, is competition.  CPT correctly points out
  that there's not much of that yet, so they claim price regulation would be
  temporary.  But just how is this "temporary" situation supposed to come to
  an end if ISDN prices are set so low that only an idiot would enter the
  market to try and compete?  Of course, the social engineers have a ready
  answer for that:  Give them subsidies from the Universal Service fund!
  The whole Rube Goldberg regulatory structure has to go.  The more out of
  line a Bell company's pricing policies are, the faster they will attract
  hungry competitors.  We've waited 20 years for ISDN.  It's far better to
  wait a little longer than have this issue used as sucker bait to keep the
  regulators in business.
  # # #
  COPYRIGHT 1996 CommunicationsWeek
  Bill Frezza is president at Wireless Computing Associates and co-founder of
  the online forum DigitaLiberty.  The opinions expressed here are his own.
  Bill can be reached at frezza@interramp.com or techweb.cmp.com/gurus.