CPT's Talking Points on ISDN Tariffs

• ISDN is the cheapest and most readily available technology for converting the current analog-digital-analog voice public switched network to an end to end digital network. Other technologies, such as ADSL, HDSL or other xDSLs, will likely replace current ISDN technologies, but not for several years, due to the need to develop better standards and make additional investments in network upgrades. ISDN is a here and now step that is cheap to deploy.
• ISDN was first developed by the local exchange carriers (LECs) for voice. ISDN was deployed to provide feature rich Centrex service to businesses, that would compete with PBX services. In past rate cases, the LECs said that the costs for ISDN voice services were only a few dollars per month more than "Plain Old Telephone" (POTS) service. Most experts think that residential BRI service costs the LEC less than $4 per month more than POTS service.
• Many LECs are trying to get huge fees for residential ISDN services, but there are reasonable rates in some states. In Arkansas, the Northern Arkansas Telephone Company charges only $17.90 per month, flat rate, for residential ISDN service. In California, the Roseville Telephone Company charges $29.50 for residential ISDN. Four of the five Midwest states served by Ameritech offer ISDN at a little more than twice the POTS rate with no per minute charges (Illinois $28.05 to $34.50, Ohio $32.20, Michigan $33.51, and Wisconsin $30.90). In Tennessee, BellSouth charges $25 to $29 for flat rate ISDN. The Delaware PSC just approved a $28.02 flat rate for Delaware. In New Mexico, the Commission recently approved a $40 flat rate.
• All of these prices are far above the LECs "incremental costs" of upgrading a POTS line to an ISDN line. The big issue for the Commissions are how large a profit or "contribution to joint costs" to allow for ISDN. Some LECs, like NYNEX, Bell Atlantic and US West want to price ISDN as some extravagant service only used by telecommuters.
• A big issue in the rate cases concerns usage. Several LECs claim that ISDN users will spent long periods online, and should be charged astronomical prices. For example, Bell Atlantic, NYNEX and US West want fees from 2 to 6 cents per minute just to make a local call. Bell Atlantic's flat rate offering is $249 per month, about twenty times the cost of a POTS line.
• High usage fees are economically inefficient. The largest portion of the costs are fixed, and do not change with usage. The lion's share of the cost of the service is to maintaining the quality of the existing telephone lines that run from the head office to your home. While increased usage may have an impact on peak usage, the cost of increasing switch capacity has fallen dramatically, and it now a small part of the cost of a telephone. The cost of using the network when its slack (during evenings and weekends) is effectively zero. The "cost" of using the service 5 hours per day is nearly the same as using the service 5 minutes per day. A pricing system that is based largely on usage fees is inefficient.
• CPT, Intel, AT&T, Compaq and others want the LECs to re-engineer the network so it handles data traffic more efficiently. Consumers want to maintain "open connections" to the Internet, but do not need high bandwidth connections all the time. We need mechanisms for "bandwidth on demand." The Regulators need to push the LECs to do things that solve problems, and make the network work for data. Right now there are so few ISDN consumers that concerns about usage are a joke. We need more deployment of digital technologies now, and we improve network architecture as the technologies are deployed.
• There are a number of theories as to why LECs don't want to market ISDN as a mass market residential service. Here are some of the most popular:
  • i) LECs want to sell second POTS lines. (A BRI ISDN service provides the functionality of two POTS, 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) LECs 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) LECs are concerned about cross-elasticity's between BRI ISDN and other business services (such as US West's expensive commitment to frame relay ), or to expensive residential multimedia networks (most of which are still on the drawing boards).
  • iv) LECs are concerned about high quality Internet telephony delivered over ISDN or other digital home connections.
  • 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.

• The technology is mature. Let's let the genie out of the bottle and see what it can do.

updated June 20, 1996

To see pleadings for CPT and others on this topic, see http://www.cptech.org/isdn.html

Corrections or suggestions to James Love.