COMMONWEALTH OF VIRGINIA STATE CORPORATION COMMISSION ___________________________________ COMMONWEALTH OF VIRGINIA ) STATE CORPORATION COMMISSION ) ) Versus ) Case No. PUC950078 ) Ex Parte, in re: ) Investigation of the Pricing of ) Residential Integrated Services ) Digital Network Offered by ) Bell Atlantic-Virginia, Inc. ) ___________________________________ The Consumer Project on Technology's Comments on Bell Atlantic's ISDN Tariff, Request for Extended Notice on Bell Atlantic's New Proposed Tariff, and Request for Joint Evidentiary Proceeding I. INTRODUCTION. 1. The Consumer Project on Technology (CPT) submits the following comments in opposition to Bell Atlantic-Virginia, Inc.'s ("BA") tariff for the provisioning of Integrated Services Digital Network ("ISDN"). CPT will address three points: a) The proposed tariffs are much too high, and will harm consumers and independent providers of information. b) On April 17, 1996, BA issued a press release announcing new residential ISDN tariffs for Virginia. Because these tariffs are substantially different from those which were previously filed with the Commission, it is in the public interest to extend the public comment period to allow consumers additional time to comment on the new tariffs. c) We repeat our earlier request, from our January 11, 1996 comments in support of the staff's motion to initiate and investigation into the ISDN tariffs, that Virginia undertake a joint evidentiary proceeding with other Bell Atlantic States that are investigating the Bell Atlantic ISDN tariffs. 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.essential.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/ 3. The Center for Study of Responsive Law and CPT are located in Washington, DC. Many of our employees, including James Love, the CPT Director, live in Virginia, and are affected by the BA residential tariff. II. WHY IS ISDN IMPORTANT? 4. 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 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 it possible for a new generation of information services. 5. 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 very important -- the value of having a digital connection is determined in part upon who else has a digital network connection. The economies of scale in producing applications for digital network connections are also very important. 6. ISDN is deployed over the public switched network. This is not necessarily true for cable modems or ADSL. The public switched network is an extremely important and valuable infrastructure that will be far more useful when its is deployed as end-to-end digital. 7. 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. III. THE BA PROPOSED TARIFFS ARE TOO HIGH AND WILL HARM CONSUMERS AND INDEPENDENT PROVIDERS OF INFORMATION SERVICES. 8. 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 is due to the high prices charged by LECs. BA's proposed tariffs are among the highest in the United States. 9. The initial tariff filed by BA requires ISDN customers to pay hefty fees for every minute of use. These fees, which are 4 cents per-minute from 7 am to 7 pm and 2 cents per minute from 7 pm to 7 am, and far higher than BA's costs. (Prices for 2B connection). Residential consumers who have BA service have reported monthly bills of $126 to more than $1,000, for local calls. (See, for example, Attachment 1, Edmund Andrews, "A Steep Hurdle to Web Shortcut: Fast Computer Access Lines Are Stumbling Over High Prices," New York Times, March 25, 1996.) In filings before the Washington, DC Public Services Commission, BA indicated that it saw residential ISDN consumers as "'computer-philes' with more than adequate resources to pay as they go." (Attachment 2). Similarly Situated LECs Have Far More Affordable Rates 10. CPT has surveyed many state ISDN tariffs. BA is among the most expensive. LECs in several states offer much cheaper residential ISDN service. For example, the Northern Arkansas Telephone Company (NATCO) offers unlimited usage at a flat rate of $17.90 per month. The Roseville Telephone Company, the 23rd largest telephone company in the US, which serves California's southern Placer County and northern Sacramento County, sells residential ISDN at $29.50 for unlimited usage. Four of the five Midwest states served by Ameritech provide residential ISDN service in Illinois, Ohio, Michigan, and Wisconsin for flat rates of $28 to $35 per month. The BellSouth residential ISDN tariff is flat rate in every state, including Tennessee, where residential ISDN service is $29.50 for unlimited usage. (See CPT ISDN survey, Attachment 3). 11. In contrast, BA charges about $30 to $34 for ISDN service, plus the per minute charges. The per-minute charges are the problem with the BA tariff. These are an attempt by BA to impose a tax on Internet usage. BA is seeking to capture, through its usage charges, the perceived value of Internet usage. As noted above, these per-minute charges can run to more than a hundred dollars per month for even moderate use of the residential service. Cost Studies Indicate ISDN Costs Are Very Low. 12. A Study by the National Regulatory Research Institute estimated that the incremental cost of residential ISDN was less than $10 per month. (John D. Borrows and William Pollard, "National Regulatory Research Institute's Review of Tennessee's Integrated Services Digital Network Cost Studies," NRRI Quarterly Bulletin Vol. 15, No. 1, March 1994, available on the Web at http://www.essential.org/cpt/isdn/isdn.html). 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 4, Scott Rafferty, "Direct Testimony," Delaware PSC Docket No.95- 014T, March 13, 1996). Available at http://www.essential.org/cpt/isdn/isdn.html. 13. 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. (Attachment 5, Testimony of Intel's Tad Hetu. Also on CPT Web site). 14. Other state regulatory commissions are considering actions to protect ISDN consumers. In the Delaware PSC's ISDN hearing, Dr. Scott Rafferty recommended that for the first 200 hours of usage, ISDN be priced the same as POTS, if ordered as a second line. The Delaware PSC staff recommended a flat rate for ISDN of $28.02, after their own review of the confidential BA cost studies. In the District of Columbia, the Office of People's Council has similarly recommended a flat rate of $32 per month. These tariffs are far below those proposed by BA for Virginia, since BA is seeking to impose hefty per minute usage charges. 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. The Commission should take administrative notice of any such cost studies for ISDN voice Centrex service that have been filed in any Virginia tariff proceedings. It is our understanding that BA has been talking out of both sides of its mouth on ISDN costs - first arguing that the incremental cost was quite low for voice Centrex services, and now arguing that it will cost an arm and a leg for residential consumers. 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 6, U.S. West, "Comments: in the Matter of End User Common Line Charges," FCC CC Docket No. 95-72, June 29, 1995, Appendix A.). IV. BELL ATLANTIC CONFLICTS OF INTEREST. 17. There is a lot of 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 wants to market ADSL to residential consumers. BA may claim that ADSL, which uses the copper wire infrastructure, is a video dialtone or 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. 19. BA has indicated that it is extremely 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. 20. BA is among the LECs which are actively marketing second lines to residential consumers. 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. V. BA'S PROPOSED NEW ISDN RATES RELEASED APRIL 17, 1996 ARE ALSO OVERPRICED, AND REQUIRE EXTENDED PUBLIC NOTICE FOR COMMENT. 21. BA announced a new ISDN pricing package on April 17, 1996. As a preliminary matter, we urge the Commission to institute a separate proceeding on the new proposal which will facilitate the filing of comments by concerned parties focusing directly on the new offering. Because the new rates were announced only a few days before the comments on the original tariff were due, a separate proceeding will permit parties who have already filed comments to focus on the new offering and provide the Commission with more thoughtful feedback than is permitted with only a few days warning. 22. In general, BA says it will offer a schedule of possible tariffs from $23.50 to $249 per month, with the same 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. 23. For every callpack option over 20 hours, the new BA tariffs are clearly excessive. For example, the 60 hour callpack option, which would in practice only be 30 hours of 2B usage, would cost 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 about twice the rate that is being considered for unlimited use in Delaware and the District of Columbia. Virginia ISDN consumers should not be expected pay rates which are several multiples of BA's costs. VI. BA SHOULD BE REQUIRED TO REPORT TO THE COMMISSION ON MECHANISMS TO INCREASE THE EFFICIENCY OF DATA TRANSMISSIONS, INCLUDING SYSTEMS OF PROVIDING "BANDWIDTH ON DEMAND." 24. To understand how residential consumers might use ISDN with today's applications, consider the following analysis from one Motorola plant. Motorola looked at 75 persons who did significant tele-commuting. They found that "for every hour of time spent with an ISDN connection, 0.6 of the hour is with both B channels open, 0.4 of an hour is with only one B channel open." This was with a "time-out" for the second channel which was "rather prompt." They found that the average worker in the study used a BRI connection for 54 hours per month. But since this was for total clock time, including the time when both channels were in use, and the time when only one channel is in use, the time "billed" was higher. Using the .6/.4 ratio, the total billable hours of B channel usage under the BA pricing scheme would be about 86 hours. This would put the average user in the $60 callback plan, or more than four times the cost of POTS. Of course, for some workers, the cost would have been even higher. 25. As new applications for ISDN are developed, such as video conferencing, ISDN delivered radio programs, or other new services, one would expect new types usage patterns to develop. In general, one hopes that the current infrastructure would be re-engineered to more efficiently accommodate its use for purposes other than the traditional analog voice services. 26. While BA and some other LECs seem alarmed at the prospect that consumers might actually want to use the copper wire network for something other than 6 minute 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. Software exists, we are told, 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. We ask the Commission to require BA to study various models for BoD, and report back to the Commission 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 per minute fees on residential consumers. 27. For now, congestion by ISDN users is a non-issue. In Maryland, BA was only able to attract about 300 residential ISDN consumers as of last fall. In Virginia the number of residential ISDN is also likely minuscule. The current problem is the lack of deployment and the dearth of new applications, not congestion. The Commission 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. VII. THE COMMISSION SHOULD UNDERTAKE JOINT EVIDENCIARY PROCEEDINGS WITH OTHER BA STATES. 28. As a consumer group, we are overwhelmed by the difficulty and cost of developing a separate record on ISDN pricing in every state. For the most part this is wasteful, and only benefits BA. CPT petitions the Commission 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 7 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 multistate administrative hearings. This letter includes exhibits, including a legal analysis and proposal to proceed with a multistate proceeding which could be modified for the BA states. VIII. CONCLUSION. 29. The Commission must require that BA price ISDN with the cost of providing the service in mind. We agree with the recommendation that Dr. Rafferty made in the Delaware proceeding. Dr. Rafferty recommended that ISDN be priced the same as POTS if ordered as a second line, since second lines are apparently already a large profit center for the LECs. Dr. Rafferty would permit usage charges if a consumer used more than 200 hours of 2B use per month, however, he would cap those charges at the incremental cost of a full time connection. The Delaware PSC staff recommendation that usage charges be capped at $1.60 per month also seems reasonable. April 19, 1996 Sincerely, __________________ _______________________ James Love Todd J. Paglia Director Staff Attorney Consumer Project on Technology P.O. Box 19367 Washington, DC 20036 202/387-8030 http://www.essential.org/cpt