CPT's Maryland ISDN Appeal

                         Before the

                        Case No. 8730

In the Matter of the Residential   )
Intellilinq BRI Service Offering   )    Case No. 8730
of Bell Atlantic, Maryland, Inc.   )


1.   Introduction.

     The Consumer Project on Technology appeals the Proposed
Order of the Hearing Examiner (POHE) in Case No. 8730,
regarding residential ISDN rates in Maryland.  The central
issue raised in this appeal is that the hearing examiner
erred by permitting Bell Atlantic (BA) and staff to assume
unrealistic and empirically refutable assumptions regarding
the amount of Callpack pre-paid usage that consumers
actually use in a given month.  This is referred to as the
Callpack "fill rate."  As discussed by CPT's expert Fred
Goldstein, BA's assumption of an average 90 percent Callpack
"fill rate," given the proposed penalties for overuse, is
completely unreasonable.   This means that BA assumes
customers will use 90% on average of whatever Callpack
option they purchase and the price charged by BA is hinged
upon this erroneous assumption.  CPT presents a simple
modification of this assumption which lowers staff estimates
of usage costs by 70 percent for each Callpack option.  In
the event that the Commission is reluctant to specify the
proper adjustment, based upon the record before the
Commission, CPT asks that the Commission order an adjustment
based upon the fill rate for each Callpack option over the
past six months.  This information is available and it is
unreasonable to use BA's fanciful assumption of 90% rather
than either the actual fill rate or a more rational assumed
fill rate.  CPT also raises a number of additional
objections to the proposed order.

     With regard to usage costs, CPT strongly urges the
Commission to reject the Bell Atlantic analysis, which is
based upon an average cost pricing model, and which does not
reflect the enormous economic efficiencies from greater off-
peak usage of the network.

     CPT objects to the treatment of loop expenses.
Specially, CPT objects to the POHE's decision to allocate 90
percent of loop expenses to residential ISDN service, on the
grounds that the 10 percent not allocated to residential
ISDN service represents an inadequate contribution to the
loop from long distance calls, features and other services
provided over the local loop.  CPT asks that loop costs be
based upon the Office of People's Counsel recommendation of
$18 per month.

     CPT believes the POHE does not accurately reflect the
record of the proceeding.  For example, the POHE errs in
omitting the name of one of the two CPT witnesses.  Mr.
Love's testimony is left off the list of witnesses on page
4.   And this seems far more than just a typographical error
because the POHE does not address any of the central themes
presented by Mr. Love or Mr. Goldstein in testimony before
the Commission.

     The POHE's discussion of other state ISDN tariffs is
incomplete and unbalanced.  Completely ignored is Mr. Love's
analysis.  The POHE repeats the errors of Ms. Dean's
testimony, without any recognition of CPT's criticism of Ms.
Dean's survey of state ISDN tariffs.  POHE also presents
baseless and incorrect assertions by BA as if they have a
factual basis.

2.   Usage Costs

     OPC's witness testified that the Bell Atlantic usage
costs were derived from an average cost pricing model.  As
we have stated repeatedly, it is inappropriate for Maryland
regulators to use average cost pricing models, based upon
historic POTS traffic, to set rates for data services where
a far greater percent of usage falls in off peak hours, when
it is essentially costless to use the network.

     The fact that off-peak usage does not consume economic
resources is why many state commissions have set call-packs,
flat rates or flat rate options far lower than is
recommended by the POHE.   This was a major point of Mr.
Love's testimony, which the POHE never addressed.  In
addition to Mr. Love's testimony in this proceeding, CPT
urges the Commission to take notice of the January 10, 1997
Report and Order by the Public Service Commission of Utah.
(Attachment 1, Docket No. 95-049-T20).  In this Order, the
Utah PSC set a flat rate for ISDN (without features) at $64,
about one third the rate recommended by the POHE, and just
$10 more than the 200 hour option.   The $10 difference
between the 200 hour call pack option and the flat rate pays
for an additional usage allowance of 1,245 hours per month.
This works out to less than 1 cent per hour.  The reason
that the Utah PSC has such a small differential between the
200 hour call pack and the flat rate option is that off-peak
usage is essentially costless.  CPT believes the POHE
ignored its testimony and briefs on this point, and as a
result, it proposes excessive rates for its flat rate
option.  This point would be even more clear if the POHE had
reported the many under $60 or under $35 per month flat rate
tariffs in its analysis, rather than simply quoting from Ms.
Dean's biased and selective flat rate tariffs, which omitted
flat rate tariffs from Michigan, Ohio, Wisconsin, Illinois,
Tennessee, California (Roseville), Arkansas (NATCO) and
Texas, as well as proposed flat rates current on appeal in
New Mexico and Delaware [page 19].

     The problem with an average cost pricing model based
upon voice POTS calls is that after a certain point of
usage, the call must be using off peak network resources.
For example, suppose a consumer actually used 140 hours of
service in one month.  That is 4.67 hours per day, on
average.  The 300 hour call pack option covers 10 hours per
day, on average.  Any reasonable analysis would conclude
that this takes the customer out of the range of voice
calling patterns - and because of the greater use of off-
peak calling, it should reflect lower average costs.

     However, even based upon this fundamental problem with
the usage cost analysis, it is useful to examine the record
in this proceeding.   The staff presented the boundaries for
usage costs, based upon FCC's publicly reported high and low
estimates of usage costs.  The POHE reports the OPC claims
that 2B usage costs are $.007, thus the 1B cost would be
$.0035.  BA is seeking $.02 peak and $.01 off-peak - between
2.5 and 10 times the FCC's estimates of average costs.
However, for the Callpack Option, BA is pricing the service
at $.0063 to $.0023 per minute, depending upon the Callpack.
If one looks at the incremental usage costs of the various
Callpack options, then BA is pricing usage at $.0031 per
minute for the incremental usage between the 60 and the 140
Callpack ($15 for 80 an additional hours of usage), or
$.0023 for the incremental usage between the 500 hour and
the flat rate options.  ($129  for an additional 945 hours).

     The Staff usage costs reflect Ms. Ann Dean's
adjustments for excessive charges, and should be given even
more weight by the Commission than BA's self serving
analysis. Each and every one of Ms. Dean's Callpack usage
figures is less than $.003 per minute.  For every Callpack
except for the 20 hour and the flat rate, Ms. Dean uses
$.0027 to $.0028 per minute.  For the incremental cost of
the Flat Rate option Ms. Dean uses $.0017 per minute, or
$.104 per hour -- lower than the other callbacks, but still
about 13 times higher than the $.008 per hour used by the
Utah Commission.

                        Table 1
                  Usage Cost Estimates

                               Per minute       Per hour

High FCC                          $0.0020         $0.120
Low FCC                           $0.0040         $0.240
OPC                               $0.0035         $0.210
BA Standard Peak                  $0.0200         $1.200
BA Standard Off-peak              $0.0100         $0.600

Average BA Callpack Rates
BA CP 20                          $0.0063         $0.375
BA CP 60                          $0.0060         $0.358
BA CP 140                         $0.0043         $0.261
BA CP 300                         $0.0037         $0.222
BA CP 500                         $0.0032         $0.193
BA 1445 - Flat                    $0.0026         $0.156

Incremental BA Callpack Rates
BA CP Incremental  - 140          $0.0031         $0.188
BA CP Incremental - 1445          $0.0023         $0.137

Average Staff Callpack Rates
Staff CP 20                       $0.0025         $0.150
Staff CP 60                       $0.0028         $0.167
Staff CP 140                      $0.0027         $0.164
Staff CP 300                      $0.0027         $0.163
Staff CP 500                      $0.0027         $0.162
Staff 1445 - Flat                 $0.0021         $0.124

Incremental Staff Callpack Rates
Staff CP 20                      $ 0.0025         $0.150
Staff CP 60                      $ 0.0029         $0.175
Staff CP 140                     $ 0.0027         $0.163
Staff CP 300                     $ 0.0027         $0.163
Staff CP 500                     $ 0.0027         $0.160
Staff 1445 - Flat                $ 0.0017         $0.104

The POHE correctly observes that BA did not present any
evidence supporting the very high 1 to 2 cent per minute
usage charges for calls outside the Callpack, and it should
be noted that the much lower Callpack usage rates present a
more reasonable rate.  This would be true even if the
Callpack rates were divided by .9, the percentage fill rate
estimated by BA and Ms. Dean.  However, the Commission
should recognize, that if it requires BA to use a more
reasonable usage rate, based upon the 140 hour call pack, it
will mostly eliminate the need for the call pack options
altogether.  This is simply because users will be better off
without a Callpack, as long as their actual usage is less
than the Callpack option, once the punitive 1 to 2 cent per
minute rates are eliminated, as has been proposed by the
POHE.   Moreover, the usage rate which is then used
effectively becomes the relevant tariff for most ISDN users.
For this reason, we request a remand on what the appropriate
usage rate should be.  The POHE itself admits that there is
no record for the BA proposal for 1 to 2 cents per minute.
If BA agrees to the usage fee of less than $.003, which Ms.
Dean uses,  then a remand may not be necessary on this point
alone.  But if BA asks for a usage rate above $.004, the
outer bound given by the FCC and presented by Staff, there
needs to be a remand on this number.

3.   Callpack Fill Rates

     As indicated above, CPT is extremely concerned about
the BA and staff use of the assumption that consumers use 90
percent, on average, of the Callpack pre-paid usage.  This
is an unreasonable assumption for many reasons.  Who among
us would use expect usage that differed by only 10 percent
per month - the consistency necessary to estimate a 90
percent fill rate?  (See Fred Goldstein's testimony).   CPT
believes the average fill rate is far different than the
expected fill rate presented by BA and staff.  Moreover, CPT
believes BA can easily present the Commission with the
average fill rates for each call pack option.  CPT believes
the actual fill rate may be in the neighborhood of 30
percent, but we do not know what the actual fill rate is for
each option.  CPT asks the Commission to adjust the rates
downward to reflect the actual fill rates, based upon
evidence from current Callpack customers.

                        Table 2
   Call Pack Usage Costs based upon 100 Percent Fill

               FCC low   FCC high     Staff       Staff
Call            $0.002     $0.004   $0.0030     $0.0019
    20           $2.40      $4.80     $3.60       $2.28
    60           $7.20     $14.40    $10.80       $6.84
   140          $16.80     $33.60    $25.20      $15.96
   300          $36.00     $72.00    $54.00      $34.20
   500          $60.00    $120.00    $90.00      $57.00
  1445         $173.40    $346.80   $260.10     $164.73

                        Table 3
   Call Pack Usage Costs based upon  90 Percent Fill

               FCC low   FCC high     Staff       Staff
Call            $0.002     $0.004   $0.0030     $0.0019
    20           $2.16      $4.32     $3.24       $2.05
    60           $6.48     $12.96     $9.72       $6.16
   140          $15.12     $30.24    $22.68      $14.36
   300          $32.40     $64.80    $48.60      $30.78
   500          $54.00    $108.00    $81.00      $51.30
  1445         $156.06    $312.12   $234.09     $148.26

                        Table 4
   Call Pack Usage Costs based upon 30 Percent Fill

               FCC low   FCC high     Staff       Staff
Call            $0.002     $0.004   $0.0030     $0.0019
    20           $0.72      $1.44     $1.08       $0.68
    60           $2.16      $4.32     $3.24       $2.05
   140           $5.04     $10.08     $7.56       $4.79
   300          $10.80     $21.60    $16.20      $10.26
   500          $18.00     $36.00    $27.00      $17.10
  1445          $52.02    $104.04    $78.03      $49.42

Rates based upon 30 percent fill rate and OPC's adjusted
loop costs

     To illustrate what reasonable rates would be, we have
used the OPC's $18.50 adjusted loop costs, and the FCC and
staff usage costs, with an assumption of a 30 percent fill
rate, which we believe is more reasonable.  The Staff usage
costs are based upon the Staff's average rates for 140 hour
Callpack and the flat rate option, adjusted for the 90
percent fill rate assumption used by BA and the Staff.

                        Table 5
Tariffs based upon OPC adjusted loop at $18.50, FCC and
 Staff Usage Costs, and 30 Percent Call Pack Fill Rate

                 FCC     FCC high       Staff     Staff
Call          $0.002       $0.004     $0.0030   $0.0019
    20        $19.22       $19.94      $19.58    $19.18
    60        $20.66       $22.82      $21.74    $20.55
   140        $23.54       $28.58      $26.06    $23.29
   300        $29.30       $40.10      $34.70    $28.76
   500        $36.50       $54.50      $45.50    $35.60
  1445        $70.52      $122.54      $96.53    $67.92

4.   Errors in the Record

     The POHE is not a balanced document.  Not only does it
ignore CPT's analysis in the case, it dismisses the CPT
recommendations as "very dubious" (page 23), while it
reports as fact many unsupported assertions made by BA.  For
example, the POHE reports Bell Atlantic's assertion that
NATCO's flat rate ISDN rate of $17.90 is a "loss leader,
since it made a substantial profit on long distance calls by
ISDN customers to Internet Service Providers," (page 19) as
fact.  But this is simply untrue.  NATCO subscribers access
their Internet Service Provider via local toll free calls.
In fact, the total cost of NATCO's flat rate 2B ISDN service
and flat rate Internet service is $40 per month, for both
services combined.  CPT presented testimony during the
hearing that NATCO reported that the $17.90 flat rate for
ISDN was profitable, but the Hearing Examiner struck this
from the record.

     The Hearing Examiner also refused to allow an exhibit
which was an NRRI cost study for ISDN in Tennessee, even
though Ms. Dean misrepresented facts from that very study
regarding loop costs, and the exhibit was needed to set the
record straight.  Now the POHE says that there is no record
to support an allocation of loop costs for ISDN, an issue
specifically dealt with in the excluded exhibit.  Moreover,
the OPC did not ask to exclude the loop, as was stated in
the POHE.  The OPC wanted to adjust the loop in the same way
that residential POTS lines are adjusted.  This is CPT's
recommendation as well.

     Ms. Dean also misrepresented information on the
California ISDN tariff proceeding, and CPT was not permitted
to provide an exhibit which corrected that error. This issue
itself provides an important insight to the Maryland ISDN
hearing and the accuracy of the POHE.  The California PUC
decided to tariff residential ISDN for less than $30 per
month, with a 200 hour usage allowance.  (Attachment 2)
This was very close to the CPT recommendation for Maryland,
which the hearing examiner dismissed as "very dubious."

     Finally, we regret the POHE did not move BA in the
direction of more constructive steps to deal with data
calls, such as always-on-ISDN, the new Nortel and Lucent
data transport switches, or other approaches that are needed
to provide residential digital data connections to the


     CPT believes the POHE is demonstrably incorrect in
several areas as discussed above.  The common strain
throughout the document is one of deference to
unsubstantiated and often inaccurate assumptions made by
Bell Atlantic, while evidence provided by CPT as well as
OPC, either refuting Bell Atlantic or pointing out that the
proposed rates are based upon inaccurate assumptions or a
total lack of data, are ignored.  The public interest
requires that the Maryland Public Service Commission approve
reasonable ISDN rates based upon actual costs incurred by
Bell Atlantic.  The POHE does not provide such rates.

     CPT respectfully requests that its proposed rates be
adopted as follows:  1.  A Virtual Flat Rate allowing for
200 hours of [*] 1B usage for under $30; or 2.  If BA's
Callpack system must be used, the tariff should be based
upon the OPC recommended $18.50 loop cost plus the Staff
usage rates from table 5 (using the $.003 usage for
Callpacks up to 140 hours, and the $.0019 usage for
Callpacks over 140 hours), plus a 30% fill rate, which
yields the following rates:   20 Hours - $19.58; 60 Hours -
$21.74; 140 Hours - 26.06; 300 Hours - $28.76; 500 Hours -
$35.60; Flat Rate - $67.92 (See Table 5).

                    Respectfully Submitted:
                    July 3, 1997

                    Todd J. Paglia
                    Staff Attorney

                    Consumer Project on Technology
                    PO Box 19367
                    Washington, DC 20036
                    (202) 387-8030

                   Certificate of Service

     I, Todd Paglia, hereby certify that the foregoing
Notice of Appeal of the Consumer Project on Technology was
served on the parties on the 3rd of July, 1997, by U.S.

                              Todd J. Paglia

[*] corrected text.

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