Re: SWBT Oklahoma ISDN tariff application

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

  At 06:11 PM 6/13/96 -0400, James Love wrote:
  
  >You have to put this into perspective.  In cost studies by the RBOCs, it
  >seems as though the company's incremental costs are pretty low.... below 5
  >cents per HOUR (not minute) in some states.  In the Delaware case, it
  >seemed as though the Commission staff thought that a nickel per day was
  >enough to cover usage.  In Utah, US West wants to sell "call pack" 
  >options with blocks of usage priced at 11 cents PER HOUR, for a single B.
  
  Five cents per hour is unrealistic for busy hour usage costs; it is
  realistic for off-peak though.  The problem is that cost studies are
  very unreliable since somebody is always trying to prove something!
  The most honest sources I know tend towards the half-cent-per-minute
  range during the busy hours.
  
  I'm not aware of US West asking for callpak pricing.  The USW boilerplate
  is more reasonable, if overpriced; its mainstream offering has a 200 hour
  threshold.  The distinction is important:  Threshold pricing means that 
  the majority of users don't have to worry about paying for usage, but the
  minority who never hang up do.  This captures the BIG difference in cost
  of serving an "average" 40-50 hour/month user vs. the 700 hour minority.
  The latter are an "excuse" for telcos to attack flat rates.
  
  >The $104 flat rate is about four times higher than it should be for any 
  >type of mass market to develop.  In four Ameritech states the residential 
  >flat rate is from $28 to $35 per month.  There are at least three other 
  >states (california, Arkansas and Tenn) where you can get flat rate under 
  >$30 per month, from the major RBOC (bell south) or smaller companies.  NM 
  >approved a $40 flat rate recently, which is being appealed, but my guess 
  >is that it will be sustained.  On the high side there are several $40 to 
  >$63 flat rates available from GTE or some US West states.
  >
  >Most companies will sell ISDN voice centrex to businesses for about $30 
  >to $40 per month, with per call (but no per minute) charges.  
  
  Centrex has no per call charges for intercom calls (the only kind often
  allowed on ISP Centrex, since the ISP pays for all usage) but full business
  rates, if applicable, otherwise.  Residential ISDN has two "killer" data
  applications, Internet access and telecommuting.  Both tend towards a
  single destination being called most of the time, the ISP or the office.
  Kiddiecomms modem users are more likely to call lots of BBSs.  (Most of
  the USA has no ISDN BBS culture, though they are not uncommon in Tennessee,
  land of music, sippin' whiskey and cheap ISDN.)  
  
  Now in theory, that should make Centrex a less obnoxious choice, since
  the calls are so localized.  But it's still usually a bad one.  It forces
  the ISP/employer to set up a Centrex hub (extra charge), and it only provides
  "cheap" service to subscribers in ONE central office area (18kf wire radius).
  Beyond that, Centrex requires Off Premise Extension mileage.  This adds
  a lot to the cost (say around $50 plus $2-6 per mile/month) when it's even
  available.  Plus it means telco has to provision the special circuit, rather
  than "local" ISDN, and this is a maintenance headache (to be mild).  It
  ties up three 64-kbps channels of transmission 7x24 plus other special
  hardware.  This is what they ENCOURAGE by overpricing local ISDN usage?
  It's almost unimaginably stupid, except that stupidity is the norm these
  days for most telcos, and they are so worshipfully dumbstruck by Centrex 
  that they will do ANYTHING to move revenue into that category.
  
  >   When are the deadlines for comment.  We'd love to file some thing with 
  >the local commission.
  
  As long as you're at it, I'm getting ready to pre-organize an intervention
  campaign here in Massachusetts.  As list members may know, the Mass. tariff
  is often held as a model.  It properly views ISDN as a local loop supplement,
  not as a separate service.  ISDN costs $8/month atop any other plan.  This
  gives 1B+D voice bearer only, but it's ISDN.  The rest is a la carte; a
  data bearer is $5/month and packet is extra too.  The downside is that data
  usage is covered by the Switchway (switched 56) tariff, which is measured
  only, so we residential users all use Data Over Voice bearers instead.
  It's a disgusting hack, of course, but it is flat rate, and it works.
  
  Various sources inside NYNEX and out tell me that they're preparing to file
  a new tariff by early summer.  This will apply to New England and New York,
  which today are under different boilerplates.  "Reportedly" it follows the
  same callpak model as Bell Atlantic.  (Gee, guess who's buying NYNEX?  Who
  at NYNEX wants to keep their job?  Two things Ray Smith is not known for
  cottoning to nicely are unions and dissent.)  Voice and data usage will
  both be measured ONLY.
  
  I tried to question Jim Duquet, the new NYNEX manager for ISDN and other
  data services (including Internet, which they haven't announced yet) about
  this.  He was astonishingly circumspect.  He would not admit to anything more
  than that they are working on a new tariff for release some day.  He did
  however continue to use one word to describe the pricing philosophy.  The word
  was "value".  ISDN is viewed as a premium service and would provide "Value".
  for money, with several options.
  
  "Value" is a loaded word in the telephone biz!  There are two general
  philosophies for ratemaking in the monopoly world.  "Value of service" was
  popular from the 1930s until the 1970s.  It resulted in things like lower
  rates for rural than urban, since rural lines, while costlier to provision,
  have a smaller local calling population.  It went out of fashion when the
  spectre of competition (long distance and terminal equipment) emerged in the
  1970s,  It was replaced by "cost of service" pricing, in which regulation
  takes the place of competition and sets the prices near where they'd be
  if there were true competition.  (Per Adam Smith, competition results in
  prices approximating cost.)
  
  So here's NYNEX trying to move from a strictly cost-based tariff (set by
  the DPU as a result of intervention in 1992, let us all praise Prodigy for
  paying for that one!) to a "value" based one, based on callpak (the only
  model with several options).  It's quite clear that they're trying to
  encourage ISPs and telecommuters to move to Centrex.  It's also clear that
  they have little sense of how mass markets work!  Time and time again,
  consumers have chosen flat rates even when measured rates would have
  given them lower rates.  They/we would rather KNOW what we're paying than
  be nickel-and-dimed to death.  But does NYNEX or BA want to give subscribers
  (or potential subscribers) what they want?  Hah!
  
  So we will probably need to intervene.  I have some ideas for what the
  winning arguments could be, and may post them when I get a chance.  While
  this is of most immediate interest to MA readers, I think the Mass. DPU
  decision will reverberate elsewhere, just as a few other state cases 
  recently have.  Can we preserve the closest thing to a cost-based ISDN
  tariff in the country?
  
  BTW I did propose to the *previous* Guy In Charge (who was a good guy) that
  they allow flat-rate data bearers for a monthly price somewhat higher than 
  flat rate speech bearers.  He liked it but the big guys in New York didn't.
  Ditto when I said threshold would be OK.  He got "the package".  They got 
  the job.  Will we get the shaft?
  ---
  Fred R. Goldstein     k1io    fgoldstein@bbn.com   +1 617 873 3850
  Opinions are mine alone.  Sharing requires permission.