ISDN Background Notes
ISDN (Integrated Services Digital Network) and telephone rates
- Back Ground Notes on
Ad Hoc Coalition for Low Cost ISDN
May 15, 1995
- ISDN is a mature technology which allows a telephone company to configure a telephone line to
transmit digital data at high speeds. With standard analog telephone lines (sometimes referred to
as POTS), the fastest modem connections to computer networks operate at 28.8 kilobytes per
second. Using ISDN technology, a telephone can connect to a network at 128k per second. The
higher speeds allow users to transmit data much faster, and to use telephone networks to transmit
multimedia applications, including low grade video transmissions. Interest in ISDN technology has
expanded greatly in the past year, as the use of the Internet's World Wide Web (WWW) has
become more popular. The highspeed ISDN connections give users the "bandwidth" to download
graphics and sound files much faster, making the WWW much more pleasant to use.
- ISDN lines require the use of special hardware in the customer's home, plus some changes in the
way the lines are routed by the telephone company. The cost of customer premises equipment vary
according to configurations, typically costing more than $100 (and can run several hundred dollars
for special uses of the technology.)
- The most important public policy debates concern the monthly cost of the ISDN lines. Studies of
the "marginal" or "incremental" cost of providing ISDN services vary greatly, depending upon who
is paying for the study. For example, in a 1993 study by the Tennessee Public Service Commission
(TPSC), South Central Bell Telephone Company (SCB) estimated that the "incremental cost" of
ISDN service (over and above the cost of POTS) is $36.33 (per month) for residential customers.
But the TPSC's own calculations were only $9.77 (per month). In an earlier 1991 study, the
Massachusetts Department of Public Utilities (MDPU) found that the "marginal cost" of ISDN
service was $7.40 (per month) over the cost of POTS service. In studies for the Consumer
Federation of America (CFA), Mark Cooper has estimated the marginal cost of an ISDN service
(over the cost of POTS) to be $2 to 4 per line (per month), and falling.
- Telephone companies and consumers have different ideas about how ISDN should be priced.
Telephone companies want to price the service on the basis of the "value" of the service, based
upon its higher functionality. Consumers would prefer to pay prices based upon the actual cost
(including reasonable profit on investment) of the service.
- If local telephone exchange service becomes a competitive market, competition among providers
may lead to lower prices based upon the costs of providing the service. However, in most markets
today local exchange telephone service is a monopoly, and even with legislation that removes legal
barriers to entry, some markets may not have much or any competition for several years, because of
economic barriers to entry.
- The Ad Hoc Coalition for Low Cost ISDN service supports transition rules, that will apply to
markets until competition for local exchange services actually occurs. Specifically, the Ad Hoc
Coalition would require the incumbent telephone company to offer ISDN service priced no more
than POTS, plus the incremental cost of ISDN. This requirement would hold until "actual
substantial" competition occurred in the market for local telephone service. Thereafter prices
would be set by the competitive market. Language that would accomplish this is given below:
(xx) A common carrier providing local exchange telephone service that is the dominant
carrier and that provides ISDN service to residential subscribers and small businesses
shall make such a service available to the public for the price of a voice grade line plus no
more than the incremental cost of providing the ISDN service. This requirement shall
expire when the Commission determines that the common carrier faces actual substantial
competition for local exchange services in the residential market.
- The Ad Hoc Coalition position is consistent with the so called "open platform" language included
in last year's HR 3636 (103rd Congress), which would have required carriers to provide a digital
service priced at cost.
FMI, contact James Love at 202/387-8030.