Re: Another point of view

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

  At 04:19 PM 11/26/96 -0500, Bill Frezza wrote:
  >Does Flat-Rate Unlimited User Access Threaten The Internet?
  >(CommunicationsWeek 11/25/96 posted w permission)
  
  Frezza's article is not the first one he's written that has been utterly
  wrong. I'm not sure if he's clueless, or whether he's grinding an ax. "Bill
  Frezza is president at Wireless Computing Associates."  Hmmm, does he,
  perchance, have any interests in technologies that compete with the public
  phone network? A previous column of his called for letting the telcos set
  ISDN rates in the stratosphere, in order to generate badwill that will drive
  subscribers to competitors when they become available five or ten years from
  now.  Sorry, Bill, I have too much to do this decade.
  
  So now he's singing the PacBell/BellAtlantic tune, accusing those awful
  Internet users of abusing the wireline phone network.  He even repeats that
  old canard about "exemption":
  
  >Back in 1983, local calls terminating on data-networks were exempted from
  >per-minute access charges. This was not a big deal because there were so
  >few data users.  But today, thanks in part to the stimulus of flat-rate
  >pricing, we are awash in exponentially growing waves of demand.  This is
  >crashing down on an inflexible, highly regulated system that is getting
  >crushed under the load.
  
  This is hogwash.  In 1992, the FCC ruled, in its "Pure 2" decision, that the
  non-traffic-sensitive cost of local telephone service should be collected in
  part from the Subscriber Line Charge (the $3-6/month FCC charge on
  subscribers' bills) and in part from the Carrier Common Line Charge (the 2-5
  cents per minute that long distance carriers pay the local telco at each end
  of a call). The actual "Pure 2" plan was all SLC, no CCLC, but the FCC
  decided to hold SLC down a little by whumping the long distance companies;
  given the 15-30 cent per minute domestic toll rates of the day, another few
  cents a minute to the Bells didn't seem all that bad.  This creates a
  two-class system.  Common carriers pay a fortune and pay to receive calls,
  while subscribers pay normal rates and only pay to place calls.  Data
  networks are *users* of the phone network.  Some telco folks wish they could
  charge hte higher CCLC to them (us), as did Reagan's FCC chair Mark Fowler,
  who used the term "exemption" instead of admitting defeat.
  
  >Of course, everyone assumes that the evil phone monopolists are crying wolf
  >when they suggest a move to measured service.  The reaction of the computer
  >industry has been "screw 'em, they lived off the fat of the land for years,
  >let them pay the price now."
  
  >The DATA Coalition, an industry lobbying group comprising several dozen
  >high-tech companies, is  demanding no less than the permanent enshrinement
  >of flat-rate unlimited service entitlements.
  
  There's no "entitlement".  Flat rates, where they exist, are generally
  supposed to be justified on the basis of average use.  Maybe some telcos
  don't do their homework, for political or whatever reason, but Bell Atlantic
  is not asking to get rid of flat rates for subscribers; they're asking for
  the Internet to be charge 2-4 cents/minute to *receive* calls, even though
  the typical ISP (effective) per-minute rate is only a tiny fraction of long
  distance rates.
  
  >The uncomfortable truth is that the biggest single threat to the future of
  >the Internet is nota slackening in the growth of demand, but chronic
  >overload caused by failed pricing mechanisms.
  >
  >This is true not only for local access but for the Internet itself.  Intel,
  >Apple, IBM, Microsoft, Compaq, Netscape, and the rest of them ought to know
  >better.
  
  Jamie and I were testifying today in a rate case.  Evidence presented in the
  case (even in the expurgated non-proprietary portion) showed that telco cost
  studies pin the cost of local call usage in the .2-.4 cent/minute range.
  CCLC is ten times that.  So what's better?  Should we risk pricing .3 cents
  low, or pricing 3 cents high?  I think the former, the status quo, is more
  economically correct, and produces *less* of a subsidy.  But even that's not
  a subsidy where the rate for flat-rate service is correctly set to reflect
  the average usage. And since average phone users run around 20-40 hours
  (1200-2400 minutes) a month, even a 40-hour user is paying their way when
  their flat-rate local calling plan costs $8/month or more.  Mine's over $20.
  ---
  Fred R. Goldstein     k1io    fgoldstein@bbn.com   +1 617 873 3850
  Opinions are mine alone.  Sharing requires permission.