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CPT on FCC universal service proceeding (fwd)

  TAP-INFO - An Internet newsletter available from listproc@tap.org
  INFORMATION POLICY NOTE - Universal Service Proceeding
  April 12, 1996
     The following are comments CPT filed with the FCC today on its
  universal service docket.  The proceeding touches on dozens of topics, and
  CPT only provided comments on a few.  We begin by asking the FCC to
  eliminate the per-minute "Carrier Common Line" (CCL) charges which are now
  imposed on every long distance interstate call made over the regulated
  switched network.  We tell the FCC that per-minute usage based charges for
  network use have led to inefficient use of the public telephone network. 
  This discussion is fairly detailed, and controversial.  The Consumer
  Federation of America and Consumers Union have indicated that they may
  file comments in opposition to our position during the reply period (which
  ends May 3, 1996).  For a view contrary to ours, contact Mark Cooper
  301/384-2204 for CFA, or Gene Kimmelman (202-462-6262) for Consumers
     We also discuss the need for the Commission to push the local telephone
  companies to convert the current analog-digital-analog voice network to a
  fully end-to-end digital network, using ISDN or other digital
  technologies.  In this context, we discuss problems with high prices for
    jamie (love@tap.org, 202/387-8030)
                         Before the
                    Washington, D.C.  20554
  COMMENTS ON FEDERAL                )
  UNIVERSAL SERVICE                  )
  AND ORDER ESTABLISHING             ) 	
  JOINT BOARD                        )  FCC  96-93
  To: Chief, Common Carrier Bureau   )
  1.	The Consumer Project on Technology is a non-profit 
  organization which was started by Ralph Nader to promote the 
  consumer interest in matters concerning the development of new 
  technologies, including information technologies.  For additional 
  information about CPT see our Web page at 
  http:/www.essential.org/cpt.  These comments address three 
  issues.  The need to eliminate the Carrier Common Line (CCL) per-
  minute fee on long distance calls, and to move away from usage 
  based contributions to finance the fixed costs of the network.  
  Second, we discussion alternatives to usage  based charges.  
  Finally, we emphasize the importance of using the telephone 
  network for digital connections to a wide area network, and the 
  discuss the problem of excessive prices for residential ISDN 
  2.	In paragraphs 112, 113, 114 and 115, the Commission has 
  invited comments on the per-minute Carrier Common Line (CCL) 
  charge, which supports the cost of the "local loop" telephone 
  network.  Under the CCL,  a per-minute usage fee for making a 
  long distance telephone call is "paid" by  the long distance 
  carriers (LDC) to the local exchange carrier (LEC),.  These 
  payments from the LDC to the LEC reduce the monthly fixed fee for 
  telephone service, but only at the expense of higher long 
  distance charges.
  3.	Assuming that overall, the change will be revenue neutral, 
  in that the additional total revenue collected by the LECs from 
  new fees will be equal to the revenue lost from the elimination 
  of the CCL, there will be a redistribution of the cost of 
  maintaining the local loop.   If the revenue from the CCL is 
  replaced by a higher Subscriber Line Charge (SLCs), which is a 
  fixed monthly fee, then persons who make very few long distance 
  calls will pay more, and persons who call more will pay less.  
  This is inevitable for any revenue neutral movement away from a 
  usage based fee, because consumers do not have identical calling 
  patterns.  There are, of course, other alternatives that could be 
  considered as substitutes for the CCL, each of which would 
  represent a different redistribution of the cost of maintaining 
  the local loop.  However, whatever the approach, we believe that 
  the elimination of the per-minute CCL charge is a necessary 
  action, in order to move toward a more efficient system of 
  pricing access to the network, and that consumers will benefit 
  greatly from the elimination of the CCL.
  4.	As of August 1, 1995, the average per minute CCL charges 
  were about 1.72 cents per conversation minute, and equaled 
  roughly 30 percent of 5.7 cents per minute for "premium" service 
  that the LECs charged the LDCs [Statistics of Communications 
  Common Carriers, Table 5.11].  Some persons estimate that the 
  elimination of the CCL will lead to a $2.50 increase in the fixed 
  monthly SLC fee.  Some consumer groups have expressed opposition 
  to the elimination of the CCL per-minute fees, if it is replaced 
  with an increase in the fixed monthly fee, because persons who 
  make few long distance calls would be worse off, including some 
  low income consumers who might be deterred from having telephone 
  service.  While we share concerns about access to the network by 
  the poor, we do not believe that it is necessary to maintain a 
  system of charging by the minute for access to the network.  The 
  Commission has many alternative methods to reduce the costs of 
  network access for poor persons which do not involve charging 
  per-minute fees for network usage.  (These will be discussed 
  5.	We believe the elimination of the per-minute CCL fee is a 
  very important first step toward a more general restructuring of 
  the regulatory regime, which will encourage more intensive and 
  efficient use of the network. We believe it is appropriate to 
  reconsider any  mechanisms which base contributions to support 
  fixed local loop costs on per-minute or per call charges.  We 
  believe it is necessary to provide alternative pricing schemes 
  which make it possible to consider different methods of pricing 
  long distance services, or other new uses of the local loop, such 
  as the types of services that can be delivered over ISDN and 
  other digital connections to the home.
  6.	The local loop telephone network is characterized by large 
  fixed costs.  The elements of the network which are sensitive to 
  the amount of network use are increasingly inexpensive to build 
  out, as the costs of interoffice trunkage has become cheaper, and 
  digital switches are deployed.  Moreover, "costs" imposed by 
  usage of the local loop network are largely sensitive to when 
  usage occurs, with congestion occurring during the peak hours 
  between 8 a.m. and 5 p.m.
  7.	The long distance telephone market is also a high fixed cost 
  technology.  Moreover, the LDCs appear to have considerable 
  excess capacity.  According to recent reports, when Sprint 
  enjoyed only about 10 percent of the long distance market, it had 
  enough capacity to carry all long distance traffic by itself.  
  The total industry wide capacity for long distance service far 
  exceeds demand.  [see the discussion from Viscusi, Vernon and 
  Harrington, Economics of Regulation and Antitrust, MIT, 1995, 
  page 495].   Long distance services provided through the public 
  switched network are overpriced and underutilized , particularly 
  during off-peak hours.
  8.	User charges based upon hefty per-minute fees cause 
  consumers to economize on their use of the network.  This is 
  inefficient when the user charges exceed the costs which are 
  imposed on the network.  We believe the CCL and other per minute 
  charges for access to the local loop do greatly exceed the 
  marginal costs of usage.  Moreover, the LECs are actively 
  lobbying state regulatory commissions to support a variety of 
  other usage based tariffs, based upon per call or per-minute 
  fees.  For example, Bell Atlantic, Nynex, PacBell, US West, 
  Ameritech (Indiana) and GTE are among companies seeking fees of 
  2 to 6 cents per minute or more for local calls made on an ISDN 
  line.  These fees are an attempt by the LECs to appropriate a 
  portion of the value that consumers perceive from higher speed 
  access to the Internet.  As a consequence of the high residential 
  ISDN tariffs, there has been very little progress toward the 
  conversion of the local loop to an end-to-end digital network.
  9.	The Internet provides an interesting contrast to the pricing 
  model for the local loop and the regulated distance telephony 
  network.  Firms and non-profit organizations which provide 
  Internet service acquire carrier services through a variety of 
  channels, including both tariffed and untariffed 
  telecommunications services, often leased from the large LECs and 
  LDCs.  The providers costs of obtaining carrier services and the 
  retail prices for Internet connectivity are highly varied.  The 
  most common arrangement for a provider is to buy dedicated (or 
  shared) leased lines, which provide a certain amount of 
  bandwidth.  Prices for these lines typically depend upon 
  capacity, rather than usage.  At the retail level, consumers have 
  a wide variety of options, including services which are priced by 
  hour of usage, prices for blocks of usage, or flat rate plans.  
  The per-hour charges typically range from $3 to $1 per hour for 
  usage, depending upon the provider or the number of hours of 
  service.   The flat rate plans are very popular.  Indeed, AT&T 
  and MCI both recently announced Internet access for $19.95 per 
  month, for unlimited usage.
  10.	People who use the Internet are often astonished at how 
  cheap Internet access is, when compared to the regulated long 
  distance telephone market.   It is possible to use the Internet 
  for a wide variety of applications, including the delivery of 
  voice, video and new types of multimedia presentations, as well 
  as the less bandwidth intensive services such as electronic mail 
  or Web browsing. 
  11.	One area where the Internet suffers is congestion, which 
  slows the network down and degrades the performance of some 
  applications.   Internet congestion occurs in time periods which 
  are apparently less predictable than for the regulated telephone 
  network.   There are various proposals about how to address the 
  congestion problems.  One suggestion is to create a mechanism to 
  charge prices for priority routing when congestion exists, while 
  allowing non-priority or non-congested traffic to remain 
  unmetered.  This has not proved to be a simple mechanism to 
  design or administer on the Internet.  There is also work on 
  methods of defining certain levels of service that would support 
  applications that require higher performance levels, which is of 
  interest to those who hope that the Internet can evolve into a 
  platform to deliver video and other multimedia products to and 
  from homes.  What is impressive about these various Internet 
  initiatives is the diversity and ingenuity of approaches.  There 
  has been little enthusiasm for the idea that a simple per-minute, 
  per-connection, per-message or per-byte charge should be imposed 
  on users, for a variety of reasons.  These charges would result 
  in too little traffic in periods with no network congestion, and 
  the administrative task of measuring usage and collecting (and 
  redistributing) fees is assumed to be costly and complex.
  12.	The current controversies over ISDN pricing present many of 
  the same issues.  Several LECs are seeking to impose very high 
  fees for ISDN deployment.  As noted earlier, Bell Atlantic, 
  Nynex, PacBell, US West, Ameritech (Indiana) and GTE are trying 
  to impose hefty per-minute charges for making a local call over 
  an ISDN line.  Several of these LECs claim that they are simply 
  trying to recover the costs of more intensive use of the network, 
  which requires greater inter-office trunkage and switching 
  capacity.  None of the independent cost studies support the high 
  fees the LECs are seeking to charge, even for nailed up 
  connections.  This is an extremely important issue, because it 
  goes to the issue of whether or not the copper wire local loop 
  will be used to provide digital connections to wide area 
  13.	Several persons from the computer and software industry have 
  offered suggestions about how the LECs could reconfigure network 
  software to accommodate more intensive use of the copper wire 
  local loop infrastructure.  Intel has told state regulators that 
  the LECs could design an ISDN connection so that consumers could 
  open a "D" channel connection, and have the software dynamically 
  open up "B" channels for data transfers on a as needed basis.  
  Since the D channel is already an open connection, this would 
  allow households to maintain permanent connections, but not tie 
  up interoffice bandwidth.  We very much support movements in this 
  direction.  Another approach, recommended by David Lesher, is 
  that the LECs offer "connectivity," at the central office, which 
  would be a digital data service, which would be routed to various 
  Internet Service Providers in the most efficient way.  These 
  innovative approaches to addressing potential congestion problems 
  contrast with the lack of creativity by incumbent telephony 
  giants, who seem exclusively interested in using the issue of 
  potential congestion as an excuse to tax value-added information 
  14.	The per-call charges that several states are imposing for 
  the local loop create their own problems.  With ISDN or other 
  digital technologies, one might consider a situation where the 
  "telephone calling" is controlled by the computer, and the 
  computer frequently connects and unconnects to various 
  information sources to obtain or send information.  With very 
  high per-call charges, this becomes too expensive.  At the 
  extreme end, users simply nail-up connections, to avoid high per 
  call charges.  Some Bell Atlantic business consumers who face a 
  9.5 cents per-call charge, nail up connections for hours for this 
  reason.  If the copper wire is to be used for digital services, 
  both the call and the per-minute charges present many distortions 
  and problems.
  15.	If the Commission is to assert jurisdiction over the 
  Internet, as has been requested by some telephone companies, then 
  it will be presented with enormous problems in determining how to 
  measure usage.  If one connects to a Web page out of the local 
  calling area, what is the measure for the usage?  The minutes 
  looking at the page?  The minutes (seconds) transferring the 
  data?  What happens when the network is slow, due to congestion?  
  Will this lead to excessive costs in trying to mirror sites in 
  order to avoid the usage charges?  Will this create a barrier to 
  information for persons in rural areas?
  16.	If the Commission imposes per-minute, per-connection, or 
  per-byte usage charges on the Internet, these charges would 
  likely eliminate much of the free publishing which now takes 
  place on the Internet.  The existence of vast free sources of 
  information on the Internet is an extremely important issue for 
  universal service.  It is one thing to provide a device which can 
  connect to a network, and another thing to be able to use the 
  network. Poor and the middle income consumers both benefit from 
  have access to information services.  Universal service goals are 
  served by policies which facilitate access to the publishing 
  products and other services which have flourished on the 
  Internet, often for free.  Usage based charges would 
  substantially reduce the scope and availability of information 
  resources which are now available for free on the Internet.
  17.	The existence of the Internet as a platform for non-
  commercial publishing and communications is important, even for 
  those persons who do not directly use the Internet, since many 
  persons are served indirectly by the Internet.  For example, 
  Essential Information uses the Internet to provide a number of 
  low income grass roots community groups with access to banking 
  statistics and other data which is used to investigate problems 
  of discriminatory lending practices.  While few individual 
  members of the group may have daily access to the Internet, their 
  neighborhood association uses the Internet for research purposes, 
  and to communicate with other neighborhood groups and national 
  experts.  Low income students often benefit when their teachers 
  use the Internet to gather information for courses.  There are 
  countless such examples.  These are very important activities 
  that would suffer if the Commission imposed the CCL per-minute 
  charges on Internet communications, or imposed other mandatory 
  usage based contributions to the local loop.
  18.	While we oppose the CCL, and recommend that the Commission 
  generally move away from mandatory per-minute or per call fees 
  for network service, we encourage the Commission to consider a 
  variety of ways to enhance network access by poor persons.  In 
  doing so, however, the Commission should consider more than the 
  cost of have a device in the home.  Poor persons, like everyone 
  else, need to use the network.  
  19.	Table one presents data on the average cost of residential 
  telephone bills, by quintile. 
                       Table 1
            How do Phone Bills Differ by Income?
                 Average      Percent of
  Income         Monthly      Toll &            Average
  Quintile       Bill*        Discretionary*    Monthly Bill
  Poorest        43.70        25.00             57%
  2nd            48.40        29.70             61%
  3rd            53.40        34.70             64%
  4th            57.10        38.40             67%
  Richest        70.70        52.00             74%
  White $ Other  54.40        35.80             66%
  Black          64.00        45.30             71%
  *  For 1992.  
  Source:  SRCI
  20.	It is important to observe that the poorest consumers spend 
  57 percent of their average monthly telephone bill for toll and 
  discretionary services..  For blacks, the percent is 71 percent.  
  Focusing only on the cost of the device ignores the way that 
  people actually the network today.
  21.	We also expect that rich and poor consumers will benefit 
  from the next generation of information products and services, 
  which require much longer connections to the network, and more 
  intensive usage.  If per-minute or per-byte type charges are 
  imposed, then the network will be taxing value added services, 
  and making many "free" value added products and services too 
  costly for persons who cannot pay the carrier charges.  If usage 
  truly drove costs in a linear fashion this would not be a 
  problem, but there is clearly a highly non-linear relationship 
  between network use and network costs.  Linear usage pricing 
  schemes will lead to extremely inefficient network usage, and 
  they will also create a pay-as-you go environment which will 
  present unneeded barriers to information services by poor 
  consumers, who are least able to pay usage fees.  Many new 
  information services will then be mostly available to higher 
  income consumers, creating further divisions between the rich and 
  the poor.
  22.	The Commission has identified a number of different 
  mechanisms for collecting revenues to support the universal 
  service fund (USF), and these mechanism are not unlike those 
  which are feasible for supporting the local loop.  We oppose 
  mechanisms which would base contributions on minutes of network 
  use, number of calls, or bytes of information which are 
  transmitted.  These are all attempts to measure the consumer 
  willingness to pay, or value they place on the network service.  
  Unfortunately, these mechanisms are very imperfect measures of 
  even this, and cause very important barriers for the deployment 
  of new digital technologies, not to mention the inefficiencies 
  from imposing linear time-insensitive pricing schemes on a 
  network with time-sensitive and non-linear costs.
  23.	If the Commission is seeking a contribution toward joint 
  fixed costs or the USF which are based upon the value of the 
  network services that are consumed, then it should consider 
  contributions which are tied to the dollar value of services 
  which are purchased, rather than proxies such as minutes, calls 
  or bytes.  Contributions based upon the dollar value of services 
  would be less harmful to efficient network usage than the per-
  minute, per-byte or per call charges.
  24.	Another possible approach would be to charge long distance 
  telephone companies a fixed fee for each customer, or fraction of 
  customer, they serve.  In a world where consumers use a single 
  carrier for long distance telephone calls, this is relatively 
  straightforward.  In a world with multiple carriers for 
  consumers, this is a more complex, but not impossible 
  undertaking.  The fixed fees, sometimes referred to as line 
  charges, should be based upon the capacity for service, not the 
  actual usage.  This would encourage greater use of the fixed cost 
  25.	The public telephone network is an enormously valuable 
  infrastructure which is vastly underutilized.  The most glaring 
  example of this under utilization is the appalling pricing 
  policies by many LECs for residential ISDN service.  For example, 
  while Bell Atlantic sell business voice ISDN service at $38 per 
  month, plus 9.5 cents per ball, it charges residential consumers 
  from 2 to 4 cents per minute to use an ISDN for a 128 Kbps data 
  connection.  U.S. West charges 6 cents per minute or more for 
  residential ISDN service.  PacBell, Nynex, Ameritech (for 
  Indiana) and GTE also rates on very high per minute charges.  
  These fees prevent anyone but the wealthiest consumers form using 
  digital technologies, like ISDN, for fast "last mile" connections 
  to the Internet or other services.
  26.	The pricing of ISDN is extremely important, because ISDN 
  provides the only here-and-now technology for providing most 
  persons with end-to-end digital network connections.  Cable modem 
  are promising, but will not be deployed everywhere, due to 
  limited cable network infrastructures in many markets.  The 
  copper wire network is the only feasible platform to provide 
  ubiquitous digital network connections for many years.  
  Regulators should not permit the LECs to hold back the future by 
  pricing ISDN or other digital services too high, or by failures 
  to reengineer the network in ways that are needed today.
  27.	With even a moderately fast digital platform, many new 
  competitive information services will be developed, as well as 
  many important non-commercial information services.  Tele-
  medicine, distance learning and other important applications need 
  more bandwidth into the home.  It is a national disgrace that 
  residential users are still buying analog modems, when ISDN 
  technology has been sitting on the shelf for years.
  28.	The LECs complain that if they allow consumers to have 
  access to ISDN technology they will face congestion problems.  
  There is no evidence to date that ISDN users have caused any 
  congestion use.  However, even more important is the failure of 
  the LECs to move toward simple modifications of network software 
  that would solve most potential congestion problems before they 
  29.	Intel and other computer and software experts are urging the 
  LECs to reengineer network software to so that ISDN users could 
  maintain open connections over the already open D channels, and 
  dynamically and instantly open B channels on a as-needed-basis 
  for data transfers.  Under this system, an open connection would 
  transmit low bandwidth data, such as electronic mail or signaling 
  information, over the D channel, which causes no congestion over 
  the current infrastructure,  the interoffice trunkage would 
  easily accommodate huge numbers of full time connections.  It is 
  painfully obvious that this is the direction in which the network 
  needs to migrate. 
  30.	Several independent studies suggest that the costs of 
  upgrading POTS lines are less than $4 per month.  It is 
  outrageous that the LECs are permitted to charge consumers 
  several multiples of this for an ISDN connection.  We agree with 
  Bill Gates of Microsoft that it is extremely important to bring 
  down ISDN pricing, and we agree with Microsoft and Intel that 
  residential ISDN service should be priced much closer to POTS.
  April 12, 1996
  James Love
  Consumer Project on Technology
  voice: 202/387-8030; fax 202/234-5176
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