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CPT on FCC Interconnection Proceeding

  There were our reply comments in the FCC Interconnection Proceeding.  We
  wrote these in support of the Information Technology Industry Council
  (ITI)'s comments on Interconnection and Unbundling of the local loop.  We 
  focus a lot on the need to set rules which allow competitors to use the 
  copper wire local loop for ISDN, ADSL, HDSL and other technologies over 
  than POTS.  jamie
                              Before the
                        Washington, DC  20554
  In the Matter of Implementation of    )
  the Local Competition Provisions in   )
  the Telecommunications Act of 1996    ) CC Docket No. 96-98
  Act of 1996                           )
  May 30, 1996
                           REPLY COMMENTS OF 
         A.  Introduction
  1.	The Consumer Project on Technology offers reply 
  comments on the Commission's  Notice of Proposed Rulemaking 
  (NPR) on the above captioned proceeding addressing the 
  interconnection and unbundling provisions of the 
  Telecommunications Act of 1996 ("1996 Act").  Our comments 
  are supportive of those filed earlier in this docket by the 
  Information Technology Industry Council (ITI).  ITI urged 
  the Commission to take steps to facilitate deployment of 
  high bandwidth services by providing national uniform 
  parameters that encourage new competition for services such 
  as ISDN, ADSL or HDSL.  We agree with ITI that there is 
  significant unmet demand for the provision of high bandwidth 
  services for the residential market, and that national 
  uniform parameters for interconnection, collocation and 
  pricing are important.
  2.	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 
          B. Unmet Demand for High Bandwidth Services for 
             Residential Market.
  3.	According to the ITI pleadings, more than one third of 
  all U.S. homes have one or more personal computers, and most 
  new computers sold today are equipped with analog modems.  
  Analog modems are a very inefficient device for network 
  connections.  Not only are analog modems relatively slow 
  when compared to off-the-shelf digital technology (28.8 Kbps 
  for analog modems versus 128 Kbps for BRI ISDN), but the 
  analog connections are less reliable, and suffer from a much 
  more time consuming launch and connect (and disconnect) 
  times than ISDN or other digital technologies.  High qualify 
  audio, usable video conferencing, and even browsing on 
  graphic intensive Internet Web pages requires faster network 
  connections that can be delivered over Plain Old Telephone 
  Service (POTS).  End-to-end digital lines can also support 
  JAVA and other new methods of pushing network intelligence 
  out to a decentralized base of users.
  4.	The most likely new technologies for delivering higher 
  bandwidth connections to the home market are cable modems or 
  a variety of digital services delivered over the copper wire 
  infrastructure.  Early optimism about deployment of cable 
  modems has given way to more realistic mid-term pessimism.  
  Less than 10 percent of cable systems currently support any 
  type of interactive communications.  Even under optimistic 
  scenarios for deployment, it is very unlikely that a 
  majority of homes would be passed by cable systems that can 
  offer cable modem technology within a period of 5 to 7 
  5.	The only ubiquitous high speed digital network 
  connection for the residential market today is BRI ISDN, but 
  the incumbent local exchange carriers (iLECs) are reluctant 
  to deploy the technology, or price it reasonably.  Companies 
  like Bell South, Bell Atlantic, US West, NYNEX and SBC are 
  pricing residential ISDN service between five and twenty 
  times the cost of POTS (in packages likely to satisfy most 
  residential ISDN users), too high for all but a handful of 
  residential consumers.  The premiums charged for ISDN 
  service are far in excess of the company's long run 
  incremental costs (LRIC) for upgrading POTS to ISDN.
  6.	For example, in a recent Commission proceeding, U.S. 
  West estimated that the monthly non-traffic sensitive cost 
  of its BRI ISDN lines was only $1.18 per month more than the 
  cost of its POTS lines. (U.S. West, "Comments: in the Matter 
  of End User Common Line Charges," FCC CC Docket No. 95-72, 
  June 29, 1995, Appendix A.).  However, US West tariffs for 
  BRI lines are several multiples of its POTS charges.  For 
  example, in Utah a residential ISDN users would pay from $39 
  to $149 per month for BRI ISDN (plus a $6 SLC), with $74 per 
  month the most likely tariff (based upon the US West pre-
  paid usage options and the $6 SLC).  As a result, very few 
  Utah consumers have BRI ISDN service.  Indeed, US West 
  reported that as of March 1996, it had only installed 53 BRI 
  ISDN lines.  
  7.     In some states, residential ISDN tariffs are even 
  higher.  We have heard from a consumer in Delaware (Bell 
  Atantic) who was billed more than $1,000 for a month of 
  local calls for BRI service, and a consumer in Massachusetts 
  (NYNEX) received a bill for more than $700 for local calls.  
  These higher tariffs have hurt ISDN deployment.  Earlier 
  this year Bell Atlantic said it had less than 300 
  residential consumers for BRI ISDN service in Maryland, a 
  state with a huge interest in modern telecommunications.  
  PacBell recently sought large increases in its residential 
  ISDN tariff, and eliminated commissions on residential ISDN 
  BRI connections to its sales force.
  8.     ISDN tariffs are highly varied from state to state, and 
  residential consumers are completely dependent upon pricing 
  strategies of local iLECs and state regulators.  For 
  example, the Northern Arkansas Telephone Company (NATCO) 
  charges only $17.90 per month, flat rate, for residential 
  ISDN service. 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 
  (Illinois, Ohio, Michigan, and Wisconsin) have flat rate 
  residential ISDN for $28 to $35 per month. But in Indiana, 
  Ameritech charges residential consumers $100 to $1,829 for 
  ISDN service.  BellSouth charges less than $30, flat rate, 
  for ISDN in Tennessee (a state where a key regulator was an 
  ISDN user), and $57 to $75 per month elsewhere.  Bell 
  Atlantic's unlimited usage option for residential users runs 
  from $249 to $1,200 per month, depending upon the state.  In 
  the US West service area, the unlimited usage options are 
  all over the map: $40 in New Mexico, $63 in Washington 
  State,  $149 in Utah (the proposed tariff), and $2,309.64 in 
  Oregon (a state without a flat rate option).
  9.     When the iLEC charges ISDN usage fees, prices are also 
  highly arbitrary, providing striking evidence of monopoly 
  power.  For example, Bell Atlantic (BA) basic proposed usage 
  charge for residential ISDN is $1.20 to $2.40 per hour, for 
  a 2B ISDN connection.  However, under its new "call pack" 
  options, which is only available in some states, BA charges 
  $.75 to $.30 per hour for ISDN (2B) usage. In recent rate 
  cases for ISDN Centrex, BA said that its usage costs for 
  ISDN voice service (the same technology as is used for data) 
  were less than $1 per month.  In Delaware, the PSC staff 
  said that the residential ISDN tariff should include a $1.60 
  per month flat rate option, which is a little more than a 
  nickel per day for 2B service. Consumers (and implicitly, 
  the value added content providers) who pay hefty usage fees 
  are being ripped off.
  10.    US West usage rates are also highly varied.  Last 
  fall, US West tried to get $12 per hour for a local ISDN 
  call in Utah.  The current standard US West usage charge is 
  $3.60 per hour (for 2B).  In the newly proposed (but not yet 
  implemented) Utah tariffs,  some usage packages are priced 
  at $.90 to $.22 per hour for 2B service.  Cost studies in 
  the Utah proceeding show that even the $.22 per hour charges 
  are far above cost.  These high usage charges are efforts by 
  the iLECs to "tax" value added services provided by 
  unaffiliated companies.  With iLEC entry into value added 
  services, this will lead to anticompetitive business 
  practices, since the iLECs can offer value added services at 
  lower rates, since the usage charges at only transfer 
  payments within the company.
  11.    In a competitive market consumers would not see 
  such huge differences in residential ISDN tariffs.  It is 
  essential to adopt interconnect and unbundling rules which 
  allow new entrants to use the local loop to provide ISDN and 
  other newer digital services.
         C.  Explanations for iLEC's failure to deploy ISDN
  12.    There are a number of theories as to why iLECs 
  don't want to market ISDN as a mass market residential 
  service.  Here are some of the most popular:
         i)  iLECs want to sell second POTS lines.  (A BRI ISDN 
             service provides the functionality of two POTS 
             lines, including separate telephone numbers).  For 
             example, in Utah the best usage option for BRI ISDN 
             service is priced approximately $10 above the cost 
             of two business POTS line.  
        ii)  iLECs hope to offer high speed Internet 
             services, bundled with ISDN or ADSL services, and 
             they do not want to provide a low cost alternative 
             over a common carrier platform. 
       iii)  iLECs are concerned about cross-elasticities 
             between BRI ISDN and other business services (such 
             as US West's expensive commitment to frame relay ), 
             or to expensive residential mulitmedia networks 
             (most of which are still on the drawing boards).  
        iv)  iLECs are concerned about high quality Internet 
             telephony delivered over ISDN or other digital home 
         v)  In Utah, Scott Rafferty raised the general issue of 
             centralization of network intelligence, and the fact 
             that high quality end to end digital network 
             connections allow this intelligence to be 
             decentralized, much of it into the highly 
             competitive market for customer premise equipment.  
             This issue is analogous to the PBX/Centrex issue.   
  Of course, incompetence is also possible.
         D.  New Digital Technologies.
  13.    BRI ISDN is a digital technology that can be 
  delivered today to the residential market.  Newer 
  technologies that may be available in 5 to 7 years in some 
  communities include ADSL or HDSL.  There is considerable 
  interest in ADSL as a platform for Internet connections.  
  While ADSL is more costly to deploy than ISDN, it may offer 
  higher bandwidth connections over the existing copper wire 
  infrastructure.  However, ADSL and other xDSL (the family of 
  DSL services)  services require special equipment and 
  connections to information service providers.  It is 
  essential that iLEC competitors are able to receive services 
  on a non-discriminatory basis, or the iLECs will monopolize 
  services that are delivered over xDSL services.  The rules 
  for interconnection and unbundling should focus on how 
  competition can develop for xDSL services.
  14.    ITI asked the Commission to adopt rules which 
  require carriers to:
         i)  unbundle local loops,
        ii)  condition (when necessary) local loops to carry 
             digital signals,
       iii)  lease "dry copper" pair at reasonable prices (no 
             greater than for POTS),
        iv)  remove load coils at reasonable costs,
         v)  cooperate in testing of xDSL services, and 
        vi)  otherwise make it possible and feasible to promote 
             entry into advanced transport services delivered  
             to the home.  
  These suggestions are very important.  The FCC should not 
  set rules with POTS only in mind.
          E. Collocation is Required and Needed for More than Basic 
             Transmission Equipment.
  15.    The Commission should reject the iLEC's efforts to 
  limit the types of equipment that may be collocated on their 
  premises.  Collation obligations of iLECs under the 1996 Act 
  are not simply limited to "basic transmission equipment."  
  Indeed, the Congress added language during its Conference 
  committee which has expanded collocation obligations beyond 
  those originally adopted in the Commission's Expanded 
  Interconnection proceeding.  While the versions of the bill 
  which passed both the Senate and the House only required 
  collocation consistent with it's proceeding on 
  interconnection  [See, for example, H.R. Report No. 104-204, 
  104th Congress, 1st Session, pt. 1, at 73 (1995), which 
  mentions the need to clarify the Commission's authority due 
  to court challenges to the Commission's rules], the 
  Conference Committee expanded the iLEC's duties, to require 
  them to provide for "physical collocation of equipment 
  necessary to interconnection or access to unbundled network 
  elements at the premises of the local exchange carrier."  By 
  adding the additional phrase, "or access to unbundled 
  network elements," Congress expanded the scope of 
  collocation.  The collocation equipment should not be 
  restricted to traditional telephony.  It should include 
  equipment that may be needed for ISDN, ADSL, HDSL and other 
  new technologies.  This is also required by Section 706(a), 
  which states that the Commission should "encourage the 
  deployment on a reasonable and timely basis of advanced 
  telecommunications capability to all Americans.by 
  utilizing.methods that remove barriers to infrastructure 
  investment."  As noted earlier, it is not appropriate to 
  adopt rules for collocation which apply to POTS only 
          G.  The Commission Should Avoid Usage Based Fees for 
              Unbundled Services.
  16.   One of the principle sins of the iLECs has been 
  repeated efforts to impose usage based fees for fixed cost 
  services.  These usage based fees are largely designed as 
  mechanisms for price discrimination, based upon expected 
  differences in willingness to pay.  This is possible because 
  of the monopoly power of the iLECs.  Any new unbundling 
  requirements that are based upon usage charges for fixed 
  cost services will further institutionalize a highly 
  inefficient and socially undesirable pricing systems for the 
  fixed cost aspects of the network.
          H.   Unbundling Can Provide Important Yardstick 
  17.    Unbundling is important, even if it isn't widely 
  employed, because it will provide an important yardstick of 
  true economic costs for the deployment of new services.  
  Thus, for example, if new digital technologies are provided 
  at much lower costs in some markets where collocation and 
  unbundling occur, this will help regulators in other markets 
  determine reasonable prices for new advanced network 
  services, even when economic barriers to entry as so great 
  that monopoly power remains.  Indeed, we expect that 
  competition for local residential services will be very 
  limited over the next decade, and this yardstick benefit 
  will be very important for those consumers who do not 
  benefit directly from competition
  May 30, 1996
  James Love
  Consumer Project on Technology
  P.O. Box 19367
  Washington, DC 20036
  202/387-8030; fax 202/234-5176
  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