Re: Smoking gun in CA

["Fred R. Goldstein" <fgoldstein@bbn.com>]

  At 05:25 PM 4/29/96 -0400, Dory Ethan Leifer wrote:
  
  >The solution is not popular with this group but if I was a telco, I'd
  >attempt to get the FCC to reclassify Internet service so that I'd receive
  >access fees on each minute someone connected to an ISP just like the
  >telco collects when you place a long distance call. Then I could
  >probably relax and not worry about flat rate ISDN or POTS. 
  
  That is precisely what PacBell has recently proposed to the FCC, in the form
  of a private "white paper" or something that doesn't have a Petition number
  and therefore is neither public nor open to refutation by the public.  This
  is also what Mad Monk Mark Fowler, Reagan's FCC head, proposed in 1987; it
  became mislabeled "modem tax" and long after it was (for the time) dead and
  done with, the notorious Modem Tax Chain Letter still circulates from 1988
  unchanged.
  
  It's a wretched idea.  First off it's impossible to cleanly draw a line as
  to who pays and who doesn't - I can dial my office "inside the firewall"
  private access point, and use the company's Internet (firewall) connection,
  or dial the "outside the firewall" public access point and still get there.
  Does the company pay for its PBX extension modems?  Non-PBX-extension
  modems?  What if they're 90% used for intra-company use but *can* connect to
  the Internet?  It goes on and on.  You can't pull it off.
  
  But beyond that, if you could, the result would be disastrous.  Today's
  typical dial-up ISP charges around a buck an hour, net.  It might be $20
  flat rate with a typical user at 20-30 hours month, or a mix of cheap and
  expensive (overtime) hours.  But CCLC long distance carrier payments are
  around $2/hour, more or less (higher in NYNEX than PacBell, for instance),
  plus intra-LATA mileage.  That's typically a 200% surcharge.  It would KILL
  the dial-up business as we know it.  My guesses:  It would possibly put
  Prodigy and AOL out of business,  Compuserve might survive on its business
  users, on a smaller scale, but Wow would go away before nightfall.  
  
  Of course the demand for net service would not go away.  The CATV companies
  would gleefully pick it up, at $30/month flat rate, with a 400 kbps-plus
  data rate.  They'd finally get off the dime and get serious about doing this
  quickly, not slowly.  And while they're at it, they'll also sell voice dial
  tone, since they're allowed and Lucent (and others) will be happy to sell
  them the needed HFC gear.  So the telcos would not only earn the wrath of
  their potentially-best residential customers, but they'd lose ratepayers in
  droves. (Note that most telcos don't have residential customers, just
  subscribers or ratepayers.)  In the end they'd find themselves burdened with
  a heap of stranded investment and negative growth.
  
  I've previously coined a term for this telco plan:  Seppuku Marketing.
  They've done it before, and *could* do it again.   Telcos have *no* sense of
  marketing.  (If they did, Bell Awful wouldn't have dared file its proposed
  Resi ISDN tariffs, nor would PacBell.  And US West would have labeled its
  three tiers differently.)  Telcos only understand how to have an
  *adversarial* relationship with "ratepayers".  The only "customers" are the
  giant Centrex users and others with influential, mobile megabucks.
  
  You lose, I lose, they lose.  Such a bargain!
  
  >I might take
  >some of the loot and try to build an overlay packet network with
  >digital subscriber access so I could provide my outraged subscribers
  >something better for the $200/month they are paying for Internet 
  >service. Some of the state PUCs and lobby groups may be happy that
  >I could drop the long-distance access fees for interexchange voice
  >and I don't need to raise grandma's monthly phone bill one cent to
  >add timeslots to my overloaded 5ESSs. The best news is I could probably
  >do it on a national level and not waste lots of time by waging state by
  >state battles.
  
  Let's get our numbers straight.  A 5ESS *can* block due to high traffic, but
  can be engineered (for a price) to any traffic level, up to "non-blocking".
  Ditto for a DMS, whose newer "Enhanced Network" fits more digital
  crosspoints (virtual ones) into one shelf than used to fit into multiple
  racks.  Cost studies have shown that when you add up the cost of switch
  capacity, trunks, et al, PEAK HOUR local calls cost telco around half a
  penny a minute.  Off-peak costs next to zilch, since it doesn't strain any
  capacity.  Peak hour varies by location, of course; resi areas are evenings,
  business areas daytime.
  
  This is at PEAK 30 cents/hour, but CCLC is many times that.  Charging CCLC
  (what IXCs pay) to ISPs is therefore an extreme distortion from cost.  It
  would extremely distort efficiency, and cause inefficient behavior by users,
  who'd abandon the telephone network in droves in favor of CATV and other
  solutions.  (Look up Metricom.  It's hacky but clever.)  Telco might try to
  sell an overpriced packet service (the Franco-German solution, so to speak)
  but since circuit mode today is cheaper to provide (for local service),
  forcing packet raises everybody's cost.  
  
  By overpricing time slots on a 5E, you distort the overall economics of the
  telecommunications industry. It's distorted enough by the high CCLCs and
  other hidden cross-subsidies paid to rural subscribers.  Why worsen it?
  Remember most of the cost is the local loop.  Reduce its use and the overall
  efficiency drops rapidly.  Switches and trunks are today relatively cheap.
  (They were relatively costlier in the stepper/tube repeater era, but still
  then were a minority of local dial service cost.)
  
  I cast my vote for a *high* free-hours threshold in order to impose
  cost-based charges (I'd market this as "semi-permanent circuit service") on
  the few users who never hang up, while leaving 90%+ of users on flat rates,
  making efficient use of the telephone network.
  ---
  Fred R. Goldstein     k1io    fgoldstein@bbn.com   +1 617 873 3850
  Opinions are mine alone.  Sharing requires permission.