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CPT- VA ISDN proceeding

                    COMMONWEALTH OF VIRGINIA   
      Versus                         )  Case No.  PUC950078 
  Ex Parte, in re:                   )
  Investigation of the Pricing of    )
  Residential Integrated Services    )
  Digital Network Offered by         )
  Bell Atlantic-Virginia, Inc.       )
         The Consumer Project on Technology's Comments 
                on Bell Atlantic's ISDN Tariff,
               Request for Extended Notice 
             on Bell Atlantic's New Proposed Tariff,
           and Request for Joint Evidentiary Proceeding
  1.	The Consumer Project on Technology (CPT) submits the 
  following comments in opposition to Bell Atlantic-Virginia, 
  Inc.'s ("BA") tariff for the provisioning of Integrated 
  Services Digital Network ("ISDN").  CPT will address three 
  a)	The proposed tariffs are much too high, and will 
  harm consumers and independent providers of information.
  b)	On April 17, 1996, BA issued a press release 
  announcing new residential ISDN tariffs for Virginia.  
  Because these tariffs are substantially different from those 
  which were previously filed with the Commission, it is in 
  the public interest to extend the public comment period to 
  allow consumers additional time to comment on the new 
  c)	We repeat our earlier request, from our January 
  11, 1996 comments in support of the staff's motion to 
  initiate and investigation into the ISDN tariffs, that 
  Virginia undertake a joint evidentiary proceeding with other 
  Bell Atlantic States that are investigating the Bell 
  Atlantic ISDN tariffs. 
  2.	The Consumer Project on Technology ("CPT") was created 
  by Ralph Nader in 1995 to represent the rights of consumers 
  on telecommunications and other technology intensive 
  matters.  CPT is a project of the Center for Study of 
  Responsive Law.  A detailed description of CPT activities is 
  on the Internet at http://www.essential.org/cpt.  CPT has 
  been very active in efforts to reduce ISDN prices 
  nationwide.  Our Web page has a special section on policy 
  issues relating to ISDN pricing, which is located at:
  	CPT is also the sponsor of an influential Internet 
  discussion list on ISDN pricing, called ISDN, which is 
  available for subscription by sending a request to 
  LISTPROC@TAP.ORG.  The archives of ISDN are available at:
  3.	The Center for Study of Responsive Law and CPT are 
  located in Washington, DC.  Many of our employees, including 
  James Love, the CPT Director, live in Virginia, and are 
  affected by the BA residential tariff. 
  4.	At present most consumers are connected to the 
  telephone network through a system where calls are often 
  (but not always) originated or terminated as analog, the 
  switching and interoffice transport is typically digital.  
  With the deployment of ISDN  technology, the telephone 
  network becomes end-to-end digital, and this is extremely 
  important, for several reasons.  Perhaps the most obvious 
  reasons are that an ISDN connection will permit much faster 
  transfers of data files than analog modem, and a single line 
  can support two telephone numbers. However, the conversion 
  of the network into one that is end-to-end digital has many 
  other benefits, since this will allow computers to manage 
  network connections, and make it possible for a new 
  generation of information services.
  5.	ISDN is one of several technologies that can provide 
  residences with digital connections.  ADSL and cable modems 
  are two other promising technologies.  However ISDN offers 
  unique advantages.  First, ISDN is a here-and-now technology 
  that can be used in nearly every home in the BA service 
  area.  This simply isn't true for any other technology, and 
  won't be for many years. ISDN provides the only home digital 
  technology that is ubiquitous for residential consumers.  
  This is very important, because network externalities are 
  very important  -- the value of having a digital connection 
  is determined in part upon who else has a digital network 
  connection. The economies of scale in producing applications 
  for digital network connections are also very important.
  6.	ISDN is deployed over the public switched network.  
  This is not necessarily true for cable modems or ADSL.  The 
  public switched network is an extremely important and 
  valuable infrastructure that will be far more useful when 
  its is deployed as end-to-end digital.
  7.	The applications that work with ISDN today are 
  extensive and impressive, and include important innovations 
  such as high-speed Internet access, CD-Quality Sound, and 
  8.	In our view, the failure to deploy ISDN broadly, a 
  mature and low cost digital technology,  is a massive 
  failure by the Local Exchange Carriers (LECs).  This failure 
  is due to the high prices charged by LECs.  BA's proposed 
  tariffs are among the highest in the United States.
  9.	The initial tariff filed by BA requires ISDN customers 
  to pay hefty fees for every  minute of use.  These fees, 
  which are 4 cents per-minute from 7 am to 7 pm and 2 cents 
  per minute from 7 pm to 7 am, and far higher than BA's 
  costs.  (Prices for 2B connection).  Residential consumers 
  who have BA service have reported monthly bills of $126 to 
  more than $1,000, for local calls.  (See, for example, 
  Attachment 1,  Edmund Andrews, "A Steep Hurdle to Web 
  Shortcut:  Fast Computer Access Lines Are Stumbling Over 
  High Prices,"  New York Times, March 25, 1996.)  In filings 
  before the Washington, DC Public Services Commission, BA 
  indicated that it saw residential ISDN consumers as 
  "'computer-philes' with more than adequate resources to pay 
  as they go."  (Attachment 2). 
  Similarly Situated LECs Have Far More Affordable Rates
  10.	CPT has surveyed many state ISDN tariffs.  BA is among 
  the most expensive.  LECs in several states offer much 
  cheaper residential ISDN service. For example, the Northern 
  Arkansas Telephone Company (NATCO) offers unlimited usage at 
  a flat rate of $17.90 per month. The Roseville Telephone 
  Company, the 23rd largest telephone company in the US, which 
  serves California's southern Placer County and northern 
  Sacramento County, sells residential ISDN at $29.50 for 
  unlimited usage.  Four of the five Midwest states served by 
  Ameritech provide residential ISDN service in Illinois, 
  Ohio, Michigan, and Wisconsin for flat rates of $28 to $35 
  per month. The BellSouth residential ISDN tariff is flat 
  rate in every state, including Tennessee, where residential 
  ISDN service is $29.50 for unlimited usage.  (See CPT ISDN 
  survey, Attachment 3).
  11.	In contrast, BA charges about $30 to $34 for ISDN 
  service, plus the per minute charges.  The per-minute 
  charges are the problem with the BA tariff.  These are an 
  attempt by BA to impose a tax on Internet usage.  BA is 
  seeking to capture, through its usage charges, the perceived 
  value of Internet usage.  As noted above, these per-minute 
  charges can run to more than a hundred dollars per month for 
  even moderate use of the residential service. 
  	Cost Studies Indicate ISDN Costs Are Very Low.
  12.	A Study by the National Regulatory Research Institute 
  estimated that the incremental cost of residential ISDN was 
  less than $10 per month. (John D. Borrows and William 
  Pollard, "National Regulatory Research Institute's Review of 
  Tennessee's Integrated Services Digital Network Cost 
  Studies," NRRI Quarterly Bulletin Vol. 15, No. 1, March 
  1994, available on the Web at 
  http://www.essential.org/cpt/isdn/isdn.html).  In the 
  Delaware residential ISDN proceeding Dr. Scott Rafferty has 
  estimated the incremental cost of residential ISDN to be 0 
  to $4 per month, and falling.  (Attachment 4,  Scott 
  Rafferty, "Direct Testimony," Delaware PSC Docket No.95-
  014T, March 13, 1996).  Available at 
  13.	Bill Gates, Microsoft founder and ISDN enthusiast, 
  feels that reasonable ISDN is the most important 
  contribution telephone companies can make to the development 
  of the Internet (Infoworld Electric, Interview March 14, 
  1996) and that it should be priced at around $20 per month 
  (The Road Ahead, p. 101).  Intel Corporation has testified 
  before utility commissions stating that ISDN should be 
  priced the same as POTS.  (Attachment 5, Testimony of 
  Intel's Tad Hetu.  Also on CPT Web site).
  14.	Other state regulatory commissions are considering 
  actions to protect ISDN consumers.  In the Delaware PSC's 
  ISDN hearing, Dr. Scott Rafferty recommended that for the 
  first 200 hours of usage, ISDN be priced the same as POTS, 
  if ordered as a second line.  The Delaware PSC staff 
  recommended a flat rate for ISDN of $28.02, after their own 
  review of the confidential BA cost studies.  In the District 
  of Columbia, the Office of People's Council has similarly 
  recommended a flat rate of $32 per month.  These tariffs are 
  far below those proposed by BA for Virginia, since BA is 
  seeking to impose hefty per minute usage charges.
  15.	In several states, Bell Atlantic has apparently argued 
  in the past that the cost of providing businesses with ISDN 
  Centrex voice service are only a few dollars per month more 
  than the cost of providing analog telephone service.  The 
  Commission should take administrative notice of any such 
  cost studies for ISDN voice Centrex service that have been 
  filed in any Virginia tariff proceedings.  It is our 
  understanding that BA has been talking out of both sides of 
  its mouth on ISDN costs - first arguing that the incremental 
  cost was quite low for voice Centrex services, and now 
  arguing that it will cost an arm and a leg for residential 
  16.	In a recent FCC proceeding, U.S. West estimated that 
  the monthly non-traffic sensitive cost of its telephone 
  lines was $17.34 for POTS and $18.52 for ISDN - a difference 
  of only $1.18 per month. (Attachment 6, U.S. West, 
  "Comments: in the Matter of End User Common Line Charges," 
  FCC CC Docket No. 95-72, June 29, 1995, Appendix A.).
  17.	There is a lot of speculation about Bell Atlantic, 
  Nynex, PacBell, and U.S. West's decisions to set such high 
  residential ISDN tariffs.  Here are some reasons why BA may 
  want to discourage low cost ISDN service.
  18.	BA wants to market ADSL to residential consumers.  BA 
  may claim that ADSL, which uses the copper wire 
  infrastructure, is a video dialtone or cable service, and 
  thus not regulated as a common carrier.  If BA believes it 
  can do this, it may want to discourage low priced ISDN 
  deployment, because ISDN would reduce the sales of the non-
  common carrier service.  Many LECs, including BA, have 
  expressed preferences for non-common carrier platforms for 
  information services, since they can more easily exercise 
  control and market power over information service providers.
  19.	BA has indicated that it is extremely concerned over 
  Internet telephony.  Since BA is seeking to become a long 
  distance telephone service provider, it may be attempting to 
  discourage ISDN deployment in order to prevent consumers 
  from using ISDN for Internet telephony with high quality 
  voice connections.
  20.	BA is among the LECs which are actively marketing 
  second lines to residential consumers.  Because each ISDN 
  line can support two telephone numbers, and two simultaneous 
  telephone calls, BA has an incentive to discourage ISDN 
  deployment, in order to sell more analog telephone lines.
  21.	BA announced a new ISDN pricing package on April 17, 
  1996.  As a preliminary matter, we urge the Commission to 
  institute a separate proceeding on the new proposal which 
  will facilitate the filing of comments by concerned parties 
  focusing directly on the new offering.  Because the new 
  rates were announced only a few days before the comments on 
  the original tariff were due, a separate proceeding will 
  permit parties who have already filed comments to focus on 
  the new offering and provide the Commission with more 
  thoughtful feedback than is permitted with only a few days 
  22.	In general, BA says it will offer a schedule of 
  possible tariffs from $23.50 to $249 per month, with the 
  same hefty per minute charges for usage which exceeds 
  "callpack" options.  As before, the usage charges are based 
  upon each channel of usage, so a 128 Kbps connection will be 
  priced at 4 cents per minute from 7 am to 7 pm, and 2 cents 
  per minute from 7 pm to 7 am.  While these rates are 
  considerably lower, over all, than the initial filing, they 
  are still excessive.  Moreover, the tariff packages present 
  an awkward set of options, whereby consumers will be forced 
  to pre-pay for usage which they may or may not need, and if 
  they guess wrong and exceed the "callpack" option, they face 
  the very high per-minute charges again.
  23.	For every callpack option over 20 hours, the new BA 
  tariffs are clearly excessive.  For example, the 60 hour 
  callpack option, which would in practice only be 30 hours of 
  2B usage, would cost 29 percent to 151 percent more than the 
  prices for unlimited usage by five LECs who offer service in 
  Arkansas, California, Ohio, Illinois, Michigan, Tennessee 
  and Wisconsin, and is about twice the rate that is being 
  considered for unlimited use in Delaware and the District of 
  Columbia.  Virginia ISDN consumers should not be expected 
  pay rates which are several multiples of BA's costs.  
  24.  To understand how residential consumers might use ISDN 
  with today's applications, consider the following analysis 
  from one Motorola plant.  Motorola looked at 75 persons who 
  did significant tele-commuting.  They found that "for every 
  hour of time spent with an ISDN connection, 0.6 of the hour 
  is with both B channels open, 0.4 of an hour is with only 
  one B channel open."  This was with a "time-out" for the 
  second channel which was "rather prompt."  They found that 
  the average worker in the study used a BRI connection for 54 
  hours per month.  But since this was for total clock time, 
  including the time when both channels were in use, and the 
  time when only one channel is in use, the time "billed" was 
  higher.  Using the .6/.4 ratio, the total billable hours of 
  B channel usage under the BA pricing scheme would be about 
  86 hours.  This would put the average user in the $60 
  callback plan, or more than four times the cost of POTS.  Of 
  course, for some workers, the cost would have been even 
  25.	As new applications for ISDN are developed, such as 
  video conferencing, ISDN delivered radio programs, or other 
  new services, one would expect new types usage patterns to 
  develop.  In general, one hopes that the current 
  infrastructure would be re-engineered to more efficiently 
  accommodate its use for purposes other than the traditional 
  analog voice services.
  26.	While BA and some other LECs seem alarmed at the 
  prospect that consumers might actually want to use the 
  copper wire network for something other than 6 minute 
  telephone calls, we have heard nothing from these monopoly 
  providers to make the network more efficient.  We believe 
  that most consumers are interested in maintaining "open 
  connections" to digital networks, in order to receive 
  various types of information in real time.  However, for a 
  number of important uses, it is not necessary to constantly 
  use the entire bandwidth that is available.  For example, in 
  Web surfing, much time is spent simply reading text on 
  pages, which doesn't require any bandwidth at all, since the 
  data has already been downloaded to the home computer.  
  Software exists, we are told, to allow ISDN users to 
  maintain connections through ISDN "D" channels, which are 
  apparently already open, and to open up B channels as 
  needed, in a Bandwidth on Demand (BoD) basis.  We ask the 
  Commission to require BA to study various models for BoD, 
  and report back to the Commission with 9 months on the 
  feasibility and cost of such systems.  This is very 
  important, and a much more constructive response to 
  potential congestion problems than charging per minute fees 
  on residential consumers.
  27.	For now, congestion by ISDN users is a non-issue.  In 
  Maryland, BA was only able to attract about 300 residential 
  ISDN consumers as of last fall.  In Virginia the number of 
  residential ISDN is also likely minuscule.  The current 
  problem is the lack of deployment and the dearth of new 
  applications, not congestion.  The Commission needs to prime 
  the pump now.  While BA begins to connect more than a 
  trivial number of residential ISDN consumers, it can be 
  required to do something constructive about bandwidth 
  management.  This will also give BA an incentive to solve 
  potential problems, rather than exploit them.
  28.	As a consumer group, we are overwhelmed by the 
  difficulty and cost of developing a separate record on ISDN 
  pricing in every state.  For the most part this is wasteful, 
  and only benefits BA.  CPT petitions the Commission to 
  undertake joint evidentiary proceedings with the other BA 
  states.  CPT offered this suggestion in our earlier 
  comments, and we repeat it today.  This would benefit 
  consumers greatly.  Our Attachment 7 is an April 2, 1996, 
  letter from Dhruv Khanna, Senior Attorney for Intel 
  Corporation, to Robert Rowe, Chairman of the Montana Public 
  Service Commission, regarding multistate administrative 
  hearings.  This letter includes exhibits, including a legal 
  analysis and proposal to proceed with a multistate 
  proceeding which could be modified for the BA states.  
  29.	The Commission must require that BA price ISDN with the 
  cost of providing the service in mind.  We agree with the 
  recommendation that Dr. Rafferty made in the Delaware 
  proceeding.  Dr. Rafferty recommended that ISDN be priced 
  the same as POTS if ordered as a second line, since second 
  lines are apparently already a large profit center for the 
  LECs.  Dr. Rafferty would permit usage charges if a consumer 
  used more than 200 hours of 2B use per month, however, he 
  would cap those charges at the incremental cost of a full 
  time connection.  The Delaware PSC staff recommendation that 
  usage charges be capped at $1.60 per month also seems 
  April 19, 1996
  __________________              _______________________
  James Love                      Todd J. Paglia
  Director                        Staff Attorney
  Consumer Project on Technology
  P.O. Box 19367
  Washington, DC 20036
  James Love / love@tap.org / P.O. Box 19367, Washington, DC 20036
  Voice: 202/387-8030; Fax 202/234-5176
  Center for Study of Responsive Law
     Consumer Project on Technology; http://www.essential.org/cpt
     Taxpayer Assets Project; http://www.tap.org