Cal. PUC ISDN Pre-Hearing Conference Statement

[Richard Kashdan <Richard@wideweb.com>]

     BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
  
  
  In the Matter of the Application	)
  of Pacific Bell (U 1001 C), a		)
  corporation, for Authority to		)	Application 95-12-043
  Increase and Restructure Certain	)
  Rates of its Integrated Services	)
  Digital Network Services		)
  
  
                       PRE-HEARING CONFERENCE STATEMENT OF
                    THOMAS McWILLIAMS AND DIRK HUGHES-HARTOGS
  
  
  1.  INTRODUCTION
  
  Thomas McWilliams and Dirk Hughes-Hartogs are both subscribers to Pacific
  Bell's residential ISDN service and are hereby making a formal appearance in
  this case.  Mr. McWilliams subscribed to ISDN for what seems to be the
  typical reasons in California: high-speed data for Internet and
  telecommuting, and some voice usage.  Mr. Hughes-Hartogs, on the other hand,
  is primarily interested in ISDN for the high-fidelity sound it can deliver
  on voice calls and the additional features ISDN offers for voice telephones.
  He points out that people in the U.S. think of ISDN as primarily a data
  service, but this is simply not true.  In other parts of the world ISDN
  lines are installed as a commonplace, cost-effective alternative to analog
  lines for voice usage only, and he would like to see this remain a
  possibility in California, not killed by arbitrary pricing and policy decisions.
  
  Mr. McWilliams and Mr. Hughes-Hartogs can be reached via their attorney:
  
  Richard L. Kashdan
  Law Office of Richard L. Kashdan
  25 Van Ness Ave.  #710
  San Francisco, CA  94102
  Voice: (415)621-4080
  Fax:   (415)621-3248
  email: richard@wideweb.com
  
  Please note that I am myself a subscriber to ISDN service and have made an
  appearance in this proceeding under my own name, but will now primarily
  appear as the attorney for these parties.
  
  2.  SETTLEMENT POTENTIAL OF THIS CASE
  
  The Commission recently established a formal settlement procedure with
  several Administrative Law Judges who are trained as mediators.  I went
  through this Commission-sponsored mediation procedure last year in another
  case and thanks to this catalyst, settlement discussions are still being
  held between the parties.  No one originally believed that case could be
  settled, but we are now very close.
  
  After all parties have a chance to review Pacific Bell's cost studies and
  other information gleaned by data requests, I strongly suggest that
  mediation and perhaps technical workshops be attempted to establish the
  future ISDN policies and pricing.
  
  3.  IS PACIFIC BELL TRYING TO MISLEAD THIS COMMISSION, OR DID THEY MISLEAD
  THE FCC LAST YEAR?  THEY CAN'T HAVE IT BOTH WAYS!
  
  Other parties have pointed out that Pacific Bell filed a Petition for Waiver
  last year with the FCC that completely contradicts their position in this
  Application.  They told the FCC that a monthly ISDN rate increase of only
  $3.50 for residential or $4.61 for business would cause businesses to back
  out of their commitment to ISDN, would harm telecommuting, would harm the
  environment, etc.  John Gueldner, Pacific Bell's vice president of
  regulatory affairs, issued a press release at the time of the FCC petition
  saying:
  
  "Pacific Bell has made a concerted effort to keep its prices for ISDN lines
  affordable.  At the very time that ISDN is growing rapidly among small-to
  medium-sized businesses and in homes throughout the state, these price
  increases will severely curtail this growth -- and in some cases, even
  reverse it.  The impact of the Commission's action will be far-reaching.
  Not only will future demand for ISDN be significantly reduced, but research
  and development to advance the technology will also be slowed or stopped."
  
  How can Pacific Bell claim that this Application, which increases the
  average rates by so much more, won't have those harmful effects?
  
  4.  ISDN IS THE FUTURE OF VOICE TELEPHONE SERVICE, BUT PACIFIC BELL SEEMS
  DETERMINED TO KILL IT
  
  Do you remember vinyl records, the analog music of the past?  Once you
  bought the record, you could listen to it all you wanted at no extra charge.
  Now most of us (with the exception of die-hard audiophiles and D.J.'s) buy
  digital compact disks instead.  How would you feel if the compact disk
  manufacturers required a per-minute charge to listen to CD's, especially if
  they could not justify any reason for such a charge?
  
  Many people are buying DSS digital satellite dishes as an alternative to
  analog cable TV.  Do you think they would continue to do that if DSS added a
  per-minute charge for no reason at all?  Movie sound is often digital
  nowadays.  Should theaters with digital sound charge a penny a minute extra?
  Digital cellular telephone service costs less than analog service.  So why
  is Pacific Bell trying to kill digital sound for basic home and business
  telephone service by outrageous per-minute charges with no justification?
  
  ISDN provides a wonderful base for voice telephone service, even for people
  who have no interest in data.  Two voice channels with the potential for
  packet and high-speed data are combined on one copper pair and Pacific Bell
  has admitted to the FCC that this makes more efficient and dynamic use of
  the pair.  Doesn't this mean that Pacific Bell saves money when they install
  ISDN lines?  ISDN phones can give PBX-like features such as direct inward
  dialing to each extension, intercom, and call waiting for multiple parties
  instead of just two, to every home.  The sound quality of ISDN phones is far
  superior to analog phones, especially when the call is ISDN at both ends.
  
  Yes, ISDN voice phones currently cost more than analog phones, but not as
  much as people think and the price would come down if the U.S. telephone
  companies allowed voice ISDN to become widely accepted.  AT&T recently had a
  sale on ISDN equipment which included the ISDN equivalent of a 3-line phone
  for $105.  This is actually less than analog 3-line phones.  The normal AT&T
  price is a little higher, but still quite competitive.
  
  We have heard the sentiment that ISDN lines are not appropriate as the only
  voice service in a residence because the phone will stop working in a power
  failure.  This can be handled easily by common battery-backup equipment, or
  by a change in philosophy of who pays for what.  In Europe the telephone
  company provides the NT-1 device, which is the electronic box that
  interfaces the ISDN line to the ISDN phones in the residence or business.
  The telephone-company-supplied NT-1's are always powered from the central
  office or from batteries maintained by the telephone company.  In the U.S.
  the customer provides the NT-1, so they cannot be powered from the central
  office and subscribers might not want to pay the extra price for battery
  backup, but this is certainly available.
  
  The sound quality of ISDN is a particular interest to Mr. Hughes-Hartogs'
  family because his wife is a little hard of hearing.  She finds that she can
  always understand people much better on a call with ISDN phones at both ends
  and that this often literally makes the difference between whether she can
  use the telephone or not.  Their daughter moved away to college and they
  installed an ISDN phone in her dorm room specifically because of the better
  fidelity.  His wife can understand his daughter clearly on the ISDN phone,
  but not on other phones.  He suggests that this issue rises to the level of
  an obligation of the phone companies under the Americans with Disabilities
  Act to provide ISDN lines to people with hearing disabilities.
  
  There is no excuse for per-minute charges for residential ISDN voice calls.
  The same public policy that encourages flat-rate local calls 24 hours a day,
  7 days a week, should apply to ISDN -- the digital future of voice
  telephony.  Please note that there is a Commission precedent for flat-rate
  ISDN voice residential service in California:  GTE has been authorized to
  install flat-rate or measured-rate voice ISDN at the subscriber's option,
  although GTE always charges for data calls, even on flat rate voice ISDN lines.
  
  5.  THE CURRENT ISDN TARIFF BLOCKS RESIDENTIAL ACCESS TO ESSENTIAL ISDN FEATURES
  
  Pacific Bell is destroying the market for residential ISDN not only by their
  pricing policy, but by arbitrarily limiting essential ISDN features to
  business lines.  Imagine an ordinary household with one ordinary voice phone
  line, but with several extension phones installed in the kitchen, living
  room, bedroom, etc.  When the phone rings, any of the extensions can answer
  it, right?  The Shared Line Appearances feature is the equivalent of this
  for ISDN phones, allowing any of the ISDN phones installed in different
  rooms to answer the single household phone number.  But Pacific Bell blocks
  this feature and forces the residential user to have a separate phone number
  for each ISDN phone, and only that one extension can answer the call.  Why?
  
  Pacific Bell also shows no foresight by blocking residential access to
  packet data on the "D" channel of an ISDN line.  As examples of residential
  use, packet data would be perfect for connecting the alarm equipment in a
  house to the alarm monitoring company, or for one-way connection to the
  Internet with cable modem or satellite dish return.
  
  6.  THE TRUTH ABOUT THE 15 KILOFEET ISSUE
  
  Truth number 1:  we believe that Pacific Bell counts many ISDN users as
  being more than 3 miles from the serving central office even though they are
  within 3 miles of the central office that handles their regular voice
  phones.  This is because some central offices cannot yet handle any ISDN or
  enough ISDN for the demand in their area, so all or additional ISDN users in
  the area must be served from a central office farther away.  This will not
  always be true.  In the future all central offices will be equipped for ISDN
  and hopefully for enough lines to meet the demand.  ISDN lines that are over
  3 miles for this reason will eventually be reconfigured to under 3 miles
  when the closer central office can handle them.
  
  Truth number 2:  ISDN lines over three miles do not necessarily need any
  special repeaters or any other equipment; this all depends on what type of
  facility is being used.  It is true that old fashioned lines that are all
  copper pairs from the central office to the home need repeaters to handle
  ISDN lines of more than three miles.  We believe that Pacific Bell is in the
  midst of replacing most of those long copper pairs with fiber optic
  equipment, and their reasons for this have nothing to do with ISDN.  A
  single fiber optic cable and equipment can handle hundreds of lines cheaper
  and more reliably than individual copper pairs, and at the same time provide
  new services like video on demand to compete with cable TV companies.
  Pacific Bell is bringing the fibers into junction points in neighborhoods
  and then running copper pairs from the businesses and homes to that point.
  
  These fiber optic cables are all digital and handle ISDN lines exactly the
  same as analog voice lines (which must be digitized first, just like ISDN!).
  Once fiber optic is installed in a neighborhood, the 3 mile restriction for
  ISDN goes away, except in the rare case that a residence is more than three
  miles away from the termination point of the fiber.
  
  Truth number 3:  We are not suggesting this and in fact we strongly oppose
  it, but we point out that there is precedence for charging the subscriber
  for the ISDN repeater only if it is needed on their line, rather than
  charging everyone an equal rate.  The Commission has authorized GTE to
  charge a $50 installation charge and then $21.50 or $28 per month for the
  repeater, which GTE calls an "Individual Line Loop Extension".  See GTE
  Schedule A-25.II.A.9.
  
  Truth number 4:  Pacific Bell and most other phone companies have been using
  equipment analogous to ISDN circuits and ISDN repeaters on voice lines for
  many years without whining to the Commission or charging the subscribers a
  cent.  There have always been neighborhoods that do not have enough copper
  lines to meet the needs of customers who want a second line.  Rather than
  run more lines or deny service, the phone company installs a device called
  by various names: "AML unit", "diplexer", "pair gain equipment".  Two of
  these are needed for each extra line.  The one at the central office end
  takes two pairs of wire from the switching machine and does magic to combine
  the signals into one pair of wires that go out into the field.  The one at
  the customer's end (mounted outside their house or perhaps on a pole down
  the block) takes the two signals on that pair of wires and splits them up
  into two pairs of wires that run the short distance from the device into the
  home.
  
  Guess what, that is basically the way ISDN works, except that ISDN should be
  cheaper for the phone company.  ISDN lines have two lines-worth of voice
  signals combined right in the switching machine itself into one pair of
  wires.  The subscriber, rather than the phone company, buys the ISDN
  equipment for their end, so the phone company saves even more money.  How
  come Pacific Bell gives away both ends of AML units, but makes such a fuss
  over providing one end of the equivalent ISDN equipment?
  
  In addition, Pacific Bell gives away Subscriber Network Interface (SNI)
  boxes on almost all new analog lines that they install.  These sophisticated
  electronic devices are used by repair people in the central office to
  isolate the line from the customer's equipment and perform diagnostics on
  the line.  We do not know the cost to Pacific Bell of these boxes, but they
  may cost as much as ISDN repeaters.  ISDN lines do not need these boxes; the
  ISDN equipment that the subscriber pays for handles all the diagnostic
  functions.
  
  7.  WARNING:  MANY -- POSSIBLY MOST -- ISDN DATA CALLS COST TWICE AS MUCH
  PER MINUTE AS YOU MIGHT THINK BECAUSE PACIFIC BELL CHARGES PER "B" CHANNEL
  OF USAGE
  
  A single ISDN line (defined as one pair of wires) in location X can be
  dialed into a single ISDN line in location Y in such a way as to provide a
  single logical data path capable of transmitting 128 kbps per second.  For
  example Pacific Bell tariff schedule A18.6.1 concerning the Group Video
  service states:  "A single ISDN line Â… [is] used to access the MCU at
  transmission speeds of 112 or 128 kbps."
  
  Pacific Bell charges for such a 128 kbps call as though it were two separate
  calls (one on each B channel) of 64 kbps each, and therefore charges twice
  the price per minute of use.  Under the proposed new rates, local daytime
  use at 128 kbps (residence or business) will cost $.042 (double the rate
  quoted in the Application) per minute, or $2.52 per hour.  Remember that
  this is for one copper pair connected to another copper pair in the local
  area.  Such a local connection of one pair to another would be free for an
  ordinary residence flat-rate line and only $.0105 per minute, or $.63 per
  hour, for an ordinary business line.  What justification can there possibly
  be for this price discrepancy?
  
  At this point we do not know what percentage of ISDN data calls are at the
  128 kbps speed, but Mr. McWilliams suspects that it is high and may be the
  majority for Internet users.  He feels that there is little point in going
  through the hassle of installing an ISDN line and equipment just to use it
  at 64 kbps, since 28.8 kbps modems can be used on ordinary lines at much
  less cost.
  
  8.  WHAT COSTS DID PACIFIC BELL CLAIM FOR THE "EDUCATION FIRST" PROGRAM?
  
  Pacific Bell has received Commission approval for their Education First
  program in which they install ISDN lines for schools and libraries with no
  installation charge and no monthly or local usage charges for the first
  year.  We strongly suspect that the cost studies Pacific Bell submitted to
  the Commission for this free service may have been oriented quite
  differently than what they are claiming in this rate increase Application.
  
  We thank Pacific Bell for their charity, but suspect that they would not
  have been so willing to install ISDN lines for free if their costs truly
  justify $2.52 per hour of data usage for everyone else.
  
  9.  DID PACIFIC BELL REALLY PROJECT THAT ISDN LINES WOULD BE USED ONLY 15
  HOURS PER MONTH?
  
  The Application states that Pacific Bell's original projection was that the
  average home usage of ISDN lines per month would be 15 hours.  It is not
  clear whether this was 15 hours per month total, or 15 hours in evenings and
  weekends, but in any event, we find it strange that Pacific Bell would ever
  have seriously considered such a figure.
  
  First of all, 15 hours per month might sound like a lot, but is only 30
  minutes per day.  Why would anyone go to the trouble and expense of
  installing an ISDN line and equipment if they were going to use it so
  little?  Second, remember that Pacific Bell counts 128 kbps calls as two
  separate 64 kbps calls, so 15 hours of usage might be only 15 minutes per
  day at 128 kbps.  Third, remember that ISDN lines handle voice calls as well
  as data.  We suspect that the average voice phone is used far more than 30
  minutes per day, so this component alone of ISDN line usage is more than
  Pacific Bell projected.
  
  10.  WHAT IS SO WRONG ABOUT AN AVERAGE ISDN LINE USAGE OF 47 HOURS PER MONTH?
  
  The Application states that the actual average home ISDN evening and weekend
  usage is 47 hours per month, and makes it sound as though this is caused by
  an evil minority of subscribers abusing the system.  But again, let us
  remember that 128 kbps calls are billed double and that the evil minority
  are the most likely to make their data calls at 128 kbps, so the 47 hours
  per month might actually correspond to an average of as little as half of
  that for actual connect time.  Let us make a wild guess and say that the 47
  hours is really partly 64 kbps and partly 128 kbps data for an average of 35
  hours of connect time, or hardly more than one hour per day.  Now compare
  that to ordinary voice phone usage.  Doesn't the average household use their
  voice phone for at least an hour a day during evenings and weekends?  Don't
  the teenagers in some households keep the line busy most of the time on
  evenings and weekends?  How come only the ISDN users are evil and abusing
  the system, but voice users of probably far more hours are not?
  
  And does this evil minority that keep the circuit nailed up all night and
  weekend even exist?  Possibly for telecommuters, but certainly not for
  Internet users, as almost all Internet providers charge a substantial amount
  of money per hour for ISDN access.
  
  11.  COST STUDIES IN OTHER STATES
  
  We do not have any farther information at this time, but Todd J. Paglia of
  the Consumer Project on Technology in Washington, D.C. wrote the following
  in an Internet message.  We plan to track down the studies he references,
  and if they appear to be legitimate and relevant to this proceeding, then we
  will enter them as exhibits:
  
  "A 1993 study by the Tennessee Public Service Commission (TPSC) staff
  estimated the incremental cost of providing ISDN service to be $9.77 (per
  month), including right-of-way costs.  This study is described in detail in
  John Borrows' and William Pollard's "The National Regulatory Research
  Institute's Review of Tennessee's Integrated Services Digital Network Cost
  Studies," NRRI Quarterly Bulletin, Vol. 15, No. 1, March 1994, pages
  125-139.  The TPSC approved flat rate residential ISDN tariffs of $21 to $26
  per month.
  
  In an earlier 1991 study, the Massachusetts Department of Public Utilities
  found that the "marginal cost" of ISDN service was $7.40 (per month) over
  the cost of POTS service.
  
  In studies for the Consumer Federation of America, Mark Cooper has estimated
  the marginal cost of an ISDN service (over the cost of POTS) to be $2 to $4
  per line (per month), and falling.
  
  In an ISDN tariff currently pending before the District of Columbia Public
  Service Commission, the PSC Staff has undercut Bell Atlantic, Washington,
  D.C., Inc.'s tariff proposal by recommending a flat rate of $32 per month."
  
  12.  BAIT AND SWITCH:  HOME SUBSCRIBERS BOUGHT THEIR ISDN EQUIPMENT IN THE
  BELIEF THAT EVENINGS AND WEEKENDS WOULD BE FREE
  
  As other parties have pointed out, Pacific Bell promised free evening,
  night, and weekend local usage of home ISDN lines and we believe that most
  subscribers to home ISDN service spent the hundreds of dollars for their
  equipment in reliance on that promise.  Isn't it a little late to change
  this policy?  Shouldn't Pacific Bell have to reimburse people for their
  equipment costs as well as line installation charges if the new rates go
  into effect and subscribers want to cancel the service?
  
  13.  THE "TOLL DISCOUNT PLAN" IN THE APPLICATION IS QUITE SUSPICIOUS
  
  The Application promises a new intraLATA toll discount plan for ISDN users
  as though this is a benefit, but it may actually turn out to be a rate
  increase rather than a decrease.  The Application is not clear about whether
  this discount plan will apply to the per-minute measured local usage
  charges, or only for intraLATA toll calls.  If the latter, then this
  "discount" plan is actually a rate increase!  Pacific Bell currently has
  discount plans for intraLATA toll calls that give much greater percentage
  savings than the one in the Application, and without requiring
  pre-subscription to a number of hours.  Are they going to block ISDN users
  from taking advantage of the existing discount plans and force them to use
  this new plan which is not as good?  How is this an advantage to ISDN
  subscribers?
  
  14.  THE PROPOSED MULTIPLE LINE DISCOUNTS ARE NOT ENOUGH FOR BUSINESS USERS,
  AND REQUIRE TOO MANY LINES FOR RESIDENCE USERS
  
  The Application proposes discounts for customers who install multiple ISDN
  lines, but this discount only kicks in for residential customers with more
  than 10 lines!  How many of those do you think there are going to be?  The
  residential discount should apply at a more reasonable two lines and the
  discount for additional lines should be more than $1.00 as Pacific Bell
  saves on technical support and other hidden costs for customers who already
  have experience and equipment installed on the first line.  Businesses and
  residences should be encouraged to switch all of their lines over to ISDN!
  
  15.  PACIFIC BELL'S ISDN TARIFF EXPIRES ON AUGUST 2, 1996, SO IT IS RIPE FOR
  COMPLETE REFORMATION
  
  The Pacific Bell tariff for BRI ISDN (the type that is used in homes and
  small businesses) is Schedule A5.4.1 called "Switched Digital Services."
  This states that it is a three year provisional offering that will terminate
  on August 2, 1996, unless canceled, changed or extended.  The time is ripe
  to reform this tariff completely to get rid of the arbitrary charges and
  restrictions that prevent deployment of ISDN as the voice, as well as the
  data, solution for the future of telecommunications in California.
  
  Dated: February 16, 1996
  
  Respectfully submitted,
  
  Richard L. Kashdan
  Attorney for Thomas McWilliams and Dirk Hughes-Hartogs
  
  25 Van Ness Ave.  #710
  San Francisco, CA  94102
  Voice: (415)621-4080
  Fax:   (415)621-3248