ISDN Background Notes

Back Ground Notes on

• 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.