[11082] in Public-Access_Computer_Systems_Forum
Fcc Access Fee Reform Proceedings (fwd)
daemon@ATHENA.MIT.EDU (James Love)
Wed Feb 19 22:14:20 1997
Date: Wed, 19 Feb 1997 15:34:53 -0600 (CST)
From: James Love <love@tap.org>
To: Multiple recipients of list PACS-L <PACS-L@UHUPVM1.UH.EDU>
Reply-To: Public-Access Computer Systems Forum <PACS-L@UHUPVM1.UH.EDU>
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Info-Policy-Notes - A newsletter available from listproc@tap.org
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INFORMATION POLICY NOTES
February 18, 1997
FCC Policy on Access Charges and the
Public Switched Telephone Network (PSTN)
James Love, CPT (love@tap.org, 202.387.8030)
The FCC has two separate proceedings on the topic of Access Fees
by local exchange telephone companies (LECs). The first is a
proceeding on Access Charge Reform that was noticed on December
24, 1996. The comment period for this docket (CC Docket No. 96-
262) closed on February 14, 1997. CPT filed comments in both the
initial and reply rounds. The second proceeding is a "Notice of
Inquiry" into the status of the "enhanced service provider" (ESP)
exemption for Internet Service Providers (ISPs). The initial
comments on this proceeding are due March 24, 1997, and reply
comments are due April 23, 1997. The FCC set up two email
addresses to receive informal comments on the proceeding. For
the access charge docket, the address is access@fcc.gov. For the
notice of inquiry, the address is isp@fcc.gov. The FCC has a
very useful Web page on both proceedings at
http://www.fcc.gov/isp.html. CPT's Web page on Access Charge
Reform is: http://www.essential.org/cpt/afr/afr.html.
Background:
Ever since the AT&T breakup, the FCC and state regulatory bodies
have pursued a policy of using hefty per minute charges on long
distance calls to keep down the monthly fixed cost of having
telephone service. For the "interstate" market, these are called
"common carrier line" (CCL) charges, and in recent years, they
averaged about 5.7 cents per minute for originating and
terminating long distance calls. These charges are imposed on
the long distance telephone company by the LEC, and passed on to
consumers in the form of higher prices for long distance
services. Internet Service Providers and other data processing
or value added computer services don't pay network access fees
because they are considered "end users" by the FCC, and covered
by the Enhanced Services Provider (ESP) exemption. (See Robert
Cannon's paper on the ESP exemption at
http://www.cais.net/cannon/memos/espart.htm)
For many years, several local service telephone companies have
tried to get state regulators or the FCC to impose per minute
usage fees on modem users. When Netscape and other software
companies announced software for Internet telephony, an
association representing small independent distance telephone
companies asked the FCC to ban the Internet telephony software or
regulate its use. The large long distance companies and many
(not all) of the LECs told the FCC that the ESP exemption should
be eliminated for ISPs. CPT and others objected. The CCL
charges are so high they would create havoc in the dial-in market
for Internet Access. If ISPs were required to pay the CCL
charges for originating an Internet connection, the charge would
be $1.67 per hour. This would eliminate all flat rate dial-in
subscription plans.
Beginning in 1995, CPT told the FCC in several pleadings that the
CCL should also be eliminated or reformed for ordinary long
distance voice traffic. The CCL is highly inefficient. By
using hefty per-minute charges to support the non-traffic
sensitive (NTS) costs of local telephone service, long distance
companies and others cannot offer innovative services or billing
options. CPT was willing to trade increases in the fixed monthly
costs of local telephone service for the elimination of the CCL,
or to see it reformed in some way that was not so inflexibly
linked to per minute usage charges. The CPT position on this
issue was controversial among some consumer groups. Gene
Kimmelman from Consumers Union initially argued that the usage
based CCL was essential to keep the fixed costs of local
telephone service low. Kimmelman asserted that the CCL provided
a mechanism for cross subsidies between rich and poor consumers.
Long distance service was discretionary, the argument ran, but
having a telephone in the home was an essential service, and
prices should be as low as possible. CPT countered that income
was not the only factor that determined long distance usage --
family size and proximity being the main non-income factors. In
the universal service docket, CPT presented data showing that as
a percent of the monthly bill, differences in consumption of toll
and discretionary services were not very different between rich
and poor consumers, and that black consumers consumed more toll
and discretionary services than do whites.
Table 1
How do Phone Bills Differ by Income?
Average Percent of
Income Monthly Toll & Average
Quintile Bill* Discretionary* Monthly Bill
Poorest 43.70 25.00 57%
2nd 48.40 29.70 61%
3rd 53.40 34.70 64%
4th 57.10 38.40 67%
Richest 70.70 52.00 74%
White & Other 54.40 35.80 66%
Black 64.00 45.30 71%
* For 1992.
Source: SRCI
(From http://www.essential.org/cpt/telecom/us.html)
CPT argued the elimination of the CCL will lead to much lower
long distance rates. Moreover, CPT argued that it was
increasingly necessary to phase out the CCL as we use the "public
switched telephone network" PSTN for new services, such as
residential connections to the Internet, for which the per-minute
CCL charges were a poor proxy for affordability.
There are also many other issues that are connected to the access
charge and ESP proceedings. The FCC and local regulators are
writing rules that allow firms to lease LEC facilities in order
to compete for local telephone service, and the entire system of
funding universal service is also being rewritten. In each of
these areas regulators must decide if per-minute or other usage
based charges are the appropriate basis of fees for use of the
PSTN.
To appreciate the complexity, it is important to understand that
most of the cost of local telephone service is for the fixed
costs of the so-called local loop from the home to the LEC
"central office." "Traffic sensitive" costs exist, but they
aren't as high as one might think. Before Internet traffic
became important, the "average cost" of using a switch was about
.17 cents per minute, or about 10.2 cents per hour, for some
LECs, or about 6 percent of the CCL charge for originating a
call. Internet usage has increased the total demand for network
usage, but it has also changed the patterns of demand. Where
voice peaks are typically around 4 pm, the Internet peak usage is
often well after 9 PM -- when voice usage is very limited. The
daily "load" on the switch is greater, but this is good news,
because longer daily loads result in lower average costs per
minute. Moreover, LECs can now deploy technology being marketed
by Nortel, Lucent and others, which can completely bypass the
LEC's circuit switches and trunks, and transport data from the
local loop directly to the ISP in a packet switched network.
This radically changes methods of cost allocation in networks
because an open data connection doesn't consume bandwidth in the
absence of file transfers. (Just staring at the screen doesn't
consume bandwidth in a packet switched network).
CPT wants the FCC and other regulators to facilitate the
migration to affordable full time data (24x7) connections to the
Internet. We believe the most practical path today is to use the
copper wire local loop, first for ISDN, and later for various
xDSL technologies that provide greater bandwidth. CPT has tried
to get regulators interested in ISDN pricing, because this is the
only digital technology that can be deployed in the mass market
right now.
The FCC has to decide how to charge consumers for higher
bandwidth connections. Some LECs, such as SBC, now double the
subscriber line charge for ISDN BRI service. If the FCC
eliminates the CCL charges, it must replace at least some of the
lost revenue to the LECs. There are many competing proposals --
such as higher fixed monthly charges for the consumer, or new
charges for long distance companies, based upon a flat rate for
each "line," or something based upon value added or gross
revenues. AT&T and some other companies want the FCC to impose a
new charge on the use of residential second lines. There are
also issues relating to life-line subsidies for the poor, or the
degree to which businesses and residences make different
contributions to the "joint costs" of the network.
The ESP/ISP inquiry is also complex. Do dial-in Internet users
impose excessive costs on the network, or does the new Internet
traffic actually lower average costs for everyone? CPT, BBN's
Fred Goldstein, the Information Technology Industry Council and
others have provided the FCC with evidence that dial-in users are
not using the network in ways that exceed peak capacity
requirements for voice users, that LECs are making substantial
profits from deployment of second lines, that LECs have off the
shelf methods of dealing with congestion at the terminating ISP
end, and that LECs benefit from certain economies in delivering
derived channels to ISPs.
If ISPs are required to pay for incoming calls, should consumers
pay less for making local calls? Should regulators eliminate
usage fees on ISDN calls made to ISPs if the ISPs are paying for
incoming calls? How would ISPs be charged for incoming calls?
On the basis of minutes per connection? Are off-peak usage fees
economically inefficient? What does it cost to meter usage?
Should fees be based upon a percent of revenues per subscriber?
Should regulators distinguish between value added and basic
services? Should ISPs be charged separately for Internet
telephony? Who would monitor such usage? Would ending the ESP
exemption have a significant revenue impact on the LECs? What
would it do to the development of the Internet? Isn't the subtle
and complex nature of data usage such that it is entirely
inappropriate to fund the fixed costs of the local loop through
usage based charges?
There are also a number of issues relating to LEC strategic
behavior. If usage fees become a profit center, will the LECs
have an incentive to deploy technology that bypasses traffic
sensitive resources (circuit based trunks and switches)? Will
excessive access fees permit the LECs to eliminate independent
ISPs through predatory pricing?
Many of the LECs and the long distance companies are pushing for
per-minute fees on ISPs. PacBell and Bell Atlantic/Nynex are
among the most aggressive LECs seeking per minute fees on ISPs.
There are also some disagreements among LECs. For example,
BellSouth told the FCC that with the current CCL charges, it
would be a mistake to eliminate the ESP for the ISPs, and
BellSouth has also not adopted the "the sky is falling" position
being advanced by PacBell and Bell Atlantic/Nynex.
The ISPs themselves are just getting organized politically. The
main ISP trade association, CIX, is badly co-opted on this issue
by the large telcos who have joined CIX. In the absence of an
effective ISP voice, a number of computer, software and consumer
electronics companies have created the Internet Access Coalition
(http://www.internetaccess.org), which has developed rapidly into
an effective advocacy effort. This is the group that sponsored
the excellent study by Lee L. Selwyn and Joseph W. Laszlo, "The
Effect Of Internet Use On The Nation's Telephone Network," which
is available on the Internet at
(http://www2.itic.org/itic/eti_toc.html).
The enormous expression of interest by individuals who sent email
for the February 14, 1997 deadline in the Access Charge docket
(access@fcc.gov) was an important step in impressing the FCC
staff and commission members about the views of the Internet
community.
It will also be important to comment on the Notice of Inquiry
that will examine the IPS's ESP exemption. Email for this round
can be sent to isp@fcc.gov. It will also be helpful to file
formal written comments. The first round of comments are due by
March 24, 1997. It will be particularly helpful to have in the
record information on topics such as:
1. How the Internet is used for civic discourse,
to exercise free speech, and to promote education.
(One might make comparisons to television).
2. How the Internet promotes economic development in the
United States.
3. How flat rate local calling has contributed to the
high level of residential penetration of Internet
services in the United States.
4. What types of information should the FCC obtain from the
LECs about network usage and costs.
5. What information the FCC should gather from the LECs
and network vendors regarding deployment of higher bandwidth
technologies, or the introduction of network solutions for
24x7 residential digital data connections to the Internet.
6. Are the LECs engaging in anticompetitive practices with
respect to independent ISPs and other enhanced service
providers?
CPT will provide additional reports on this important issue.
James Love
Consumer Project on Technology
love@tap.org; 202.387.8030
http://www.essential.org/cpt
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