NEW JERSEY BOARD OF PUBLIC UTILITIES Docket Number: TT96040345 (Bell Atlantic's ISDN Tariff) The Consumer Project on Technology's Comments on Bell Atlantic's ISDN Tariff and Request for Joint Evidentiary Proceeding INTRODUCTION 1. The Consumer Project on Technology (CPT) submits the following comments in opposition to Bell Atlantic, New Jersey, Inc.'s ("BA") tariff for the provisioning of Integrated Services Digital Network ("ISDN"). We request that the NJ Board of Public Utilities hold a full hearing into the appropriate pricing of ISDN and we further request that at such hearings CPT be granted Intervenor status on behalf of Natalie Gluck, resident of Princeton, NJ, as well as New Jersey consumers in general. CPT will address the following points in our comments: I. The importance of reasonably priced ISDN; II. The proposed tariffs are much too high and will harm consumers, stifle overall development of the state's high-technology sector, and hinder independent providers of information; III. Bell Atlantic's conflicts of interest in pricing ISDN; IV. Strategies for making the local telephone infrastructure more efficient for usage intensive applications; and V. Request for a Joint Hearing addressing ISDN pricing in all Bell Atlantic regions. 2. The Consumer Project on Technology ("CPT") was created by Ralph Nader in 1995 to represent the rights of consumers on telecommunications and other technology intensive matters. CPT is a project of the Center for Study of Responsive Law. A detailed description of CPT activities is on the Internet at http://www.essential.org/cpt. CPT has been very active in efforts to reduce ISDN prices nationwide. Our Web page has a special section on policy issues relating to ISDN pricing, which is located at: http://www.essentiasl.org/cpt/isdn/isdn.html. CPT is also the sponsor of an influential Internet discussion list on ISDN pricing, called ISDN, which is available for subscription by sending a request to LISTPROC@TAP.ORG. The archives of ISDN are available at: http://www.essential.org/listproc/isdn/ I. WHY IS ISDN IMPORTANT? 3. At present, most consumers are connected to the telephone network through a system where calls are often (but not always) originated or terminated as analog, the switching and interoffice transport is typically digital. With the deployment of ISDN technology, the telephone network becomes end-to-end digital, and this is extremely important for several reasons. Perhaps the most obvious reasons are that an ISDN connection will permit much faster transfers of data files than an analog modem, and a single line can support two telephone numbers. However, the conversion of the network into one that is end-to-end digital has many other benefits, since this will allow computers to manage network connections, and make possible the development of a new generation of information services. In general, ISDN and other digital technologies will allow more of the network intelligence to be decentralized, in highly competitive markets for customer premise equipment (CPE) and network services. 4. ISDN is one of several technologies that can provide residences with digital connections. ADSL and cable modems are two other promising technologies. However, ISDN offers unique advantages. First, ISDN is a here-and-now technology that can be used in nearly every home in the BA service area. This simply isn't true for any other technology, and won't be for many years. ISDN provides the only home digital technology that is ubiquitous for residential consumers. This is very important, because network externalities are crucial-the value of having a digital connection is determined in part upon who else has a digital network connection. The higher the number of users with a digital network, the greater are the chances that services, software, and hardware using this high-speed platform will develop. The economies of scale in producing applications for digital network connections are obviously very important. 5. ISDN is deployed over the public switched network. This is not necessarily true for cable modems or some implementations of ADSL. The public switched network is an extremely important and valuable infrastructure that will be far more useful when it is deployed as end-to-end digital. 6. The applications that work with ISDN today are extensive and impressive, and include important innovations such as high-speed Internet access, CD-Quality Sound, and video-conferencing. Without reasonable pricing of ISDN, however, these services will not become widely available nor will additional services develop. II. THE BA PROPOSED TARIFFS ARE TOO HIGH AND WILL HARM CONSUMERS AND INDEPENDENT PROVIDERS OF INFORMATION SERVICES. 7. In our view, the failure to deploy ISDN broadly, a mature and low cost digital technology, is a massive failure by the Local Exchange Carriers (LECs). This failure, which has slowed development of information technologies that utilize a higher bandwidth platform, is due to the high prices charged by LECs. BA's proposed tariffs are among the highest in the United States. 8. BA's high rates have resulted in recommendations by the state utility commissions' staff or office of peoples' counsel which reject BA's proposals in favor of far more reasonable rates. After extensive hearings and investigation, the Delaware Public Service Commission recently approved a flat rate residential ISDN tariff as follows: Cost of dialtone (POTS) $9.40 Touch Tone Service 0.60 Upgrade to ISDN line 12.92 Fee for Unlimited Usage 1.60 Total Before SLC 24.52 Subscriber Line Charge 3.50 Total After SLC 28.02 The tariff had previously been recommended by the Delaware PSC Staff and approved by the Hearing Examiner. It is difficult to understand how BA can maintain its request for a flat rate of $249 per month (before the SLC)-about ten times higher than the Delaware rate-in the instant proceeding. 9. Other Commissions within the Bell Atlantic region have indicated that they will act consistent with the Delaware PSC's decision. At a July 3, 1996 ISDN hearing, the Maryland Public Service Commission ruled to make Staff's suggested rates (which are lower than BA's tariff proposal) effective on an interim basis while expedited hearings are conducted into the cost of providing ISDN. It is expected that the hearings will result in significant rate reductions beyond the Staff recommendations, which are already lower than BA's proposal. Moreover, the District of Columbia Office of Peoples' Counsel made a recommendation, in considering BA's original tariff, that ISDN be offered at a flat rate of $32 per month. Similarly Situated LECs Have Far More Affordable Rates 10. CPT has surveyed many state ISDN tariffs and BA is among the most expensive. Indeed, BA's flat rate offering of $249 per month is the highest flat rate offering in the United States! LECs in several states offer much more affordable residential ISDN service. For example, consider the following monthly, unlimited flat rates currently available: $17.90 Northern Arkansas Telephone Company (NATCO); $29.50 Roseville Telephone Company; California $28.05 Ameritech-Illinois $30.90 Ameritech-Wisconsin $32.20 Ameritech-Ohio $33.51 Ameritech-Michigan $29.50 BellSouth-Tennessee; $40.83 US West-New Mexico $41.38 GTE-Texas Both the NATCO and the Roseville tariffs were filed voluntarily. The Roseville Telephone Company is the 23rd largest telephone company in the US, serving California's southern Placer County and northern Sacramento County. NATCO serves rural Arkansas. Can BA truly be so inefficient that its costs are 14 times as high as a rural telephone company in Arkansas? The BellSouth residential ISDN tariff is flat rate in every state, including Tennessee, where residential ISDN service is $29.50 for unlimited usage-far lower than that BA flat rate of $249. Why are the BA tariffs so far above the four Ameritech states? This sampling of rates from large and small companies, rural and urban, indicates just how overpriced are BA's offerings. 11. In contrast to the reasonable rates in place in many other regions, BA will offer a schedule of possible tariffs from $23.50 to $249 per month, with hefty per minute charges for usage which exceeds "callpack" options. As before, the usage charges are based upon each channel of usage, so a 128 Kbps connection will be priced at 4 cents per minute from 7 am to 7 pm, and 2 cents per minute from 7 pm to 7 am. While these rates are considerably lower, over all, than the initial filing, they are still excessive. Moreover, the tariff packages present an awkward set of options, whereby consumers will be forced to pre-pay for usage which they may or may not need, and if they guess wrong and exceed the "callpack" option, they face the very high per-minute charges again. 12. For every callpack option the new BA tariffs are clearly excessive. For example, the 60 hour callpack option priced at $45, which in practice would only be 30 hours of 2B usage, costs 29 percent to 151 percent more than the prices for unlimited usage by five LECs who offer service in Arkansas, California, Ohio, Illinois, Michigan, Tennessee, and Wisconsin, and is almost twice the rate that was considered reasonable for unlimited use by the Delaware Public Service Commission Staff and the District of Columbia Office of Peoples' Council. Independent Studies and Expert Testimony Indicate ISDN Costs Are Very Low. 13. In the Delaware residential ISDN proceeding Dr. Scott Rafferty has estimated the incremental cost of residential ISDN to be 0 to $4 per month, and falling. (Attachment 1, Scott Rafferty, "Direct Testimony," Delaware PSC Docket No.95-014T, March 13, 1996). Available at http://www.essential.org/cpt/isdn/isdn.html. 14. Bill Gates, Microsoft founder and ISDN enthusiast, feels that reasonable ISDN is the most important contribution telephone companies can make to the development of the Internet (Infoworld Electric, Interview March 14, 1996) and that it should be priced at around $20 per month (The Road Ahead, p. 101). Intel Corporation has testified before utility commissions stating that ISDN should be priced the same as POTS. (Also on CPT Web Site). LECs Argued in Other Proceedings that ISDN Costs Were Very Low 15. In several states, Bell Atlantic has apparently argued in the past that the cost of providing businesses with ISDN/Centrex voice service are only a few dollars per month more than the cost of providing analog telephone service. It is also our understanding that BA has reported that its usage costs for ISDN/Centrex voice services were less than $1 per month, in some BA states. The BPU should take administrative notice of any cost studies for ISDN/Centrex service that have been filed in New Jersey tariff proceedings. BA apparently has been talking from both sides of its mouth on ISDN costs-first arguing that the incremental cost was quite low for ISDN/Centrex services, and now arguing that their costs require that they charge hefty rates for providing ISDN to residential consumers. Why should residential consumers pay so much more than businesses users who obtain ISDN/Centrex? 16. In a recent FCC proceeding, U.S. West estimated that the monthly non-traffic sensitive cost of its telephone lines was $17.34 for POTS and $18.52 for ISDN-a difference of only $1.18 per month. (Attachment 2, U.S. West, "Comments: in the Matter of End User Common Line Charges," FCC CC Docket No. 95-72, June 29, 1995, Appendix A.). III. BELL ATLANTIC CONFLICTS OF INTEREST. 17. There is much speculation about Bell Atlantic, Nynex, PacBell, and U.S. West's decisions to set such high residential ISDN tariffs. Here are some reasons why BA may want to discourage low cost ISDN service. 18. BA is among the LECs which are actively marketing second lines to residential consumers and this business is quite lucrative. Because each ISDN line can support two telephone numbers, and two simultaneous telephone calls, BA has an incentive to discourage ISDN deployment, in order to sell more analog telephone lines. 19. With POTS lines, BA benefits from more centralized control of network intelligence. ISDN, on the other hand, allows for greater decentralization on network intelligence, and makes the provisioning of services such as call waiting, voice-mail, call forwarding, etc., potentially much more competitive because they could be provided by customer premises equipment. 20. BA wants to market ADSL to residential consumers. BA may claim that ADSL, which uses the copper wire infrastructure, is a cable service, and thus not regulated as a common carrier. If BA believes it can do this, it may want to discourage low priced ISDN deployment, because ISDN would reduce the sales of the non-common carrier service. Many LECs, including BA, have expressed preferences for non-common carrier platforms for information services, since they can more easily exercise control and market power over information service providers. 21. BA has indicated that it is very concerned over Internet telephony. Since BA is seeking to become a long distance telephone service provider, it may be attempting to discourage ISDN deployment in order to prevent consumers from using ISDN for Internet telephony with high quality voice connections. IV. BA SHOULD BE REQUIRED TO REPORT TO THE BPU ON MECHANISMS TO INCREASE THE EFFICIENCY OF DATA TRANSMISSIONS, INCLUDING SYSTEMS OF PROVIDING "BANDWIDTH ON DEMAND." 22. ISDN is a technology that makes possible a number of new digital applications, and it is in the public interest to encourage and facilitate the deployment and commercial viability of these new applications. One would expect users to use the network more intensively. For example, a recent study in one Motorola plant involving 75 persons who did significant telecommuting, found that workers used about 86 hours of B channel use in a month, on average. Of course, distance education, Internet radio, and other new applications will also lead to different uses of the network infrastructure. 23. As new applications for ISDN are developed, the current infrastructure should be re- engineered to more efficiently accommodate its use for purposes other than the traditional analog voice services. 24. While BA and some other LECs seem alarmed at the prospect that consumers want to use the copper wire network for something other than voice telephone calls, we have heard nothing from these monopoly providers to make the network more efficient. We believe that most consumers are interested in maintaining "open connections" to digital networks, in order to receive various types of information in real time. However, for a number of important uses, it is not necessary to constantly use the entire bandwidth that is available. For example, in Web surfing, much time is spent simply reading text on pages, which doesn't require any bandwidth at all, since the data has already been downloaded to the home computer. Computer experts say that networks could be configured to allow ISDN users to maintain connections through ISDN "D" channels, which are apparently already open, and to open up B channels as needed, in a Bandwidth on Demand (BoD) basis. There are other proposals for BoD, which involve decentralized deployment of routers, or other approaches. We ask the BPU to require that BA study various models for BoD, and report back to the BPU with 9 months on the feasibility and cost of such systems. This is very important, and a much more constructive response to potential congestion problems than charging residential consumers prohibitively costly per minute fees. 25. For now, congestion by ISDN users is a non-issue. In New Jersey, BA was only able to attract a relative handful of residential ISDN customers. In Maryland the number is around 300 as of last fall and in Virginia the number of residential ISDN customers is also minuscule. The current problem is the lack of deployment and the dearth of new applications, not congestion. The BPU needs to prime the pump now. While BA begins to connect more than a trivial number of residential ISDN consumers, it can be required to do something constructive about bandwidth management. This will also give BA an incentive to solve potential problems, rather than exploit them. V. THE BPU SHOULD UNDERTAKE JOINT EVIDENCIARY PROCEEDINGS WITH OTHER BA STATES. 26. As a consumer group, we are overwhelmed by the difficulty and cost of developing several separate records on ISDN pricing in every state. It seems that BA's strategy is to out last any opposition by starting the proceeding over once it is clear that there proposal will be subjected to scrutiny in a rate investigation. For the most part this is wasteful, and only benefits BA. CPT petitions the BPU to undertake joint evidentiary proceedings with the other BA states. CPT offered this suggestion in our earlier comments, and we repeat it today. This would benefit consumers greatly. Our Attachment 3 is an April 2, 1996 letter from Dhruv Khanna, Senior Attorney for Intel Corporation, to Robert Rowe, Chairman of the Montana Public Service Commission, regarding multi-state administrative hearings. This letter has several attachments, including a legal analysis and proposal to proceed with a multi-state proceeding which could be modified for the BA states. CONCLUDING COMMENTS 27. In general, the BPU must determine the most important public policy considerations are for ISDN pricing. Does it make sense to take a technology such as ISDN, which is priced close to POTS for business Centrex users, and impose huge usage fees for residential users? Does the BPU want New Jersey consumers to use ISDN? Does the BPU want New Jersey firms to have a market for new digital applications? Does the BPU want to promote a mass market for new digital applications? Does the BPU want ISDN priced so high it remains a niche product with a tiny user base? Will BA's assertions that ISDN is only for higher income consumers remain a self-fulfilling prophecy? 28. The BPU must require that BA price ISDN with the cost of providing the service in mind. We recommend that the BPU consider several issues in the setting the price. 29. First, if the line is installed as a second line, it should be priced the same as a POTS line. In this situation, BA will still be receiving revenues for two lines, while the consumers will have the benefits of the higher functionality of ISDN for the second line. Since BA's costs for a second line are quite low, BA will still do well with this service. 30. However, it would be reasonable to charge residential consumers somewhat more for a POTS line if ordered as the first line. Cost data, including data from ISDN/Centrex pricing, suggests that a premium $5 per month over POTS would be adequate. 31. If the BPU wants to have differential charging based upon usage, the call-pack options that BA has requested are unacceptable. Instead, make it much more simple. We suggest a basic usage allowance of 200 hours, with modest usage fees thereafter, capped at a rate which reflects the BA incremental cost of a dedicated line. A reasonable usage rate would be more like 5 to 10 cents per hour (after the 200 hours usage allowance), rather than the higher fees BA has proposed. Of course, if the costs of metering are too high, flat rates may be more efficient. 32. Don't set residential ISDN tariffs higher than business ISDN/Centrex rates! If BA is making money selling businesses ISDN/Centrex, with flat rated virtual office calling, how can the BPU justify hefty usage charges on residential consumers? July 9, 1996 Sincerely, /s/James Love /s/Todd J. Paglia Director Staff Attorney Consumer Project on Technology P.O. Box 19367 Washington, DC 20036 202/387-8030 http://www.esssential.org/cpt