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TELECOM Digest     Mon, 18 Jan 93 08:36:00 CST    Volume 13 : Issue 30

Index To This Issue:                     Moderator: Patrick A. Townson

    Re: OBT and Flat-Rate Service ([e-mail])
    Re: OBT and Flat-Rate Service (John R. Levine)
    Re: OBT and Flat-Rate Service (Maxime Taksar)
    Re: OBT and Flat-Rate Service (Jeff Sicherman)
    Re: OBT and Flat-Rate Service (Patrick Lee)
    Re: OBT and Flat-Rate Service (John Higdon)
    Re: OBT and Flat-Rate Service (Joshua E. Muskovitz)
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From: [e-mail]
Subject: Re: OBT and Flat-Rate Service
Organization: CompuData Inc., DeLand
Date: Sun, 17 Jan 93 22:29:39 GMT


Do not be surprised if the phone company does push for elimination of
flat rate calling.  They will cite the old argument that one should
pay for what one uses, and that low-usage customers subsidize the high
usage customers.

The problem with this argument is that off-peak phone service (and
most residential use is off-peak) does not really cost much to
provide.  It costs more to meter the service than to provide it,
because the physical plant is already installed to deal with the
peaks.

The cost of phone service  may  be  divided  into  several  broad
areas:
    (a) power
    (b) accounting functions (billing &c)
    (c) operator services
    (d) outside wiring, from office to customer premises
    (e) inside plant (switches &c.)

Let us consider each in turn.

Power consumption is negligible.  Commercial power costs pennies per
Kw/H, and the power requirement is so small that phone companies have
been known to satisfy it with batteries.  Figure less than a penny per
hour, and Florida Power is not known for its altrusim.

Accounting functions are largely automated.  Humans do not tally your
phone calls any more; instead, a computer generates a long tape which
is sent to be processed into bills.  A human does answer the phone
when you call to complain about being over billed.  Also, there is a
certain cost to generating an itemized bill, amounting to some
measurable fractions of a penny per line.  If you require accounting
on measured service, this can add up.  Figure a cost of several cents
per page to print a bill showing the measured calls.  Figure a small
cost in computing, as well, to figure out how much measured service
you used even if you do not demand an itemized bill.  It is the
availability of computers to generate bills which make measured
service possible: other costs of providing service would not be worth
metering.

Operator services are generally billed, and should be at least
self-liquidating.  Services to work around faulty equipment should be
charged against that portion of the plant which has failed.  Reference
to tarriffs, along with an estimate of time required for service to
yield dollars per hour, should be enlightening.  Careful measurement
and calculation has determined the optimum number of operators on duty
at any one time.

Outside wiring does not wear out faster if you are talking and more
slowly if the phone is on-hook.  Unless you have a party line, the
wiring is there unused if you are not talking on the phone, so usage
does not affect this.  This is a fixed cost, however, and is non-zero.
You should expect a calculable cost to maintain the wires from the
office to your house, and this may be a large portion of your phone
bill.  In addition to maintenance, you should expect to pay a "cost of
money" charge to pay for the original installation of copper between
the office and your house; again, this should be a calculable fixed
monthly charge.

The inside plant is different.  Switch capacity is generally a
fraction of what would be required if all of the outside plant wanted
to talk at once.  (To demonstrate, hit an important power pole with a
large truck, then try to get dial tone.)  The reason that the switch
capacity is a limited is simple.  They figure out what will be
required during peak periods, add a fudge factor, and that's the
amount of inside plant purchased for the office.

If you are talking during the peak period, you are pushing up the
requirement for inside plant.  Off-peak, most of the capacity sits
idle.  When are you at home talking to your friends (or, to cite a
favourite example, calling the BBS at the opposite end of the local
calling area)?  After work, during the off peak hours.

Thus, the argument that measured residential service means that you
are paying for what you use, is unconvincing.  Of course, it sounds
good on the surface, and many PUC commissioners will buy it, but for
residential service it is not true.  So long as the marginal cost of
providing off-peak local calls (outside of the effort of metering
them) is best measured in the tenths of pennies per hour, and the
fixed cost of maintaining physical plant dominates, then it is
reasonable to base the charges on the fixed cost.

A form of measured service which only charged for peak-hours usage
would be reasonable, however, because it would be taking into account
the requirement for increased physical plant.  An unmetered option
here may turn out to be cheaper: just charge a fee for peak-hour
access equal to the expensed cost of providing added inside plant.
The reason that this may prove cheaper is that you avoid having to
track usage and do not have to totalize and generate billing
information.

You may want to watch the PUC in which you are interested.  Surely, if
the phone company has expressed interest in going all-metered, the
matter will not drop.  If you have an appointed PUC, as we now do,
they will tend to be fairly responsive to the utilities and less
responsive to the rate payers.  In order for the rate payers to have
any effect at all, they will have to watch carefully and be sure to
timely file all testimony.

------------------------------

Subject: Re: OBT and Flat-Rate Service
Organization: I.E.C.C.
Date: 17 Jan 93 18:10:40 EST (Sun)
From: [e-mail] (John R. Levine)


> [Moderator's Note: I've never understood why people had such a big
> objection to simply paying for the service they use.

This has been argued to death, so I don't suggest that we flood
telecom with it, but there is very little connection between the
actual cost of providing local exchange service and the message rate
plans that telcos offer.  Apparently a reasonable message rate for
intra-CO calls would be something like one cent per ten minutes, not
the two cents/minute or so that most message rate plans charge.

There's no reason that people who make long BBS calls at night should
pay more, since they're using capacity that is certainly unused at
that hour.  What would make economic sense is something like the way
that industrial customers pay for electricity: partly charge per use,
but mostly charge for maximum demand, e.g. your bill is largely based
on how much you're on the phone at peak hours like 10AM and 2PM.  But
good luck explaining that to regulators or POTS users.  The NYC plan
where you pay for the number of local calls regardless of length also
makes some sense, since setting up the call is usually the most
expensive part.


Regards,

John Levine, [e-mail], {spdcc|ima|world}!iecc!johnl

------------------------------

Date: Sun, 17 Jan 93 18:34:37 -0800
From: [e-mail] (Maxime Taksar KC6ZPS)
Subject: Re: OBT and Flat-Rate Service


In article <[e-mail]>, PAT writes:

> [Moderator's Note: I've never understood why people had such a big
> objection to simply paying for the service they use. We've had no flat
> rate service in Chicago outside a very small local area for many
> years, and for most subscribers, the cost for phone service actually
> went *down* when they were no longer forced to pay for all the modem
> users who went through thousands of units a month at flat rate.
> Naturally, the guys who spent hours every night on a modem calling BBS
> lines on the other side of the area code (or even inter-area code; our
> old flat rate plans took in 312/708 and parts of 815/219/414) squealed
> like pigs when the change was announced; *they* had to start paying
> their way ... the 90 percent plus of our population which does not use
> modems or make hundreds (or thousands) of calls each month was very
> pleased to see a reduction in their bills. When IBT ditched almost all
> the flat rate stuff a few years ago, the biggest objections came in
> the form of countless articles on BBS message bases from people talking
> about the greedy and awful old telco.  Count me as one who approves of
> 'pay for what you use'; I don't like paying subsidies for my neighbor's
> use of the phone. I don't do it for the electricity, water or gas they
> use, why should I for their phone calls via flat rate, averaged out
> pricing?  But then again, I don't run war dialers against entire CO's
> or call computer chat lines in the outer fringes of 708/815.    PAT]

This is a very nice theory, Pat, but you have, once again,
conveniently forgotten that a "unit" is not an actual, tangible item
or product.

What we, as telephone consumers, are paying for is network capacity.
(Including the wire plant to our doorstep, switching capacity, and
various features).


The capacity is there whether we use it or not.  Remember who uses the
most capcity, and therefore determines how much must be there?  Yes,
they're commercial users.  These are the same commercial users that
for the most part use this capacity only during the business day.

Any amount of money that the telco gets for off-peak usage is just
icing -- if they didn't get it, it would not change how much they
would get or how much they would spend on peak capacity.

Do you really want to be subsidising the peak-period users, Pat?
That's exactly what you're doing.

I am one of those dreaded modem users, but I use it only during
off-peak hours.  I also strongly agree with you in that we should pay
for what we use.  I propose the following solution:

All lines should be measured, *however*, there should be a significant
(e.g. 60%) discount for calls made during near-peak periods (i.e.
evenings) and a 100% discount for off-peak periods (i.e. nights,
weekends).

What if "near-peak period" usage starts to approach the levels of
"peak period" usage?  Reclassify the times that the discounts apply
(with approval of the PUC, of course).

This would be much closer to true pay-for-what-you-use system than the
all-lines-always-measured system.


Maxime Taksar              KC6ZPS           [e-mail]


[Moderator's Note: Well, IBT does give discounts. Telco says we must
pay for what we use, but they do give it away a lot cheaper if we use
it at night and weekends. I think the overnight discount is 40 percent
off of day rates. Seems fair enough.   PAT]

------------------------------

Date: Mon, 18 Jan 1993 02:20:16 -0800
From: Jeff Sicherman <[e-mail]>
Subject: Re: OBT and Flat-Rate Service
Organization: Cal State Long Beach


In response to Rob Knauerhase's posting of a local (to Ohio) news
item, the ever-ready Moderator sayeth:

(Quote deleted, see earlier message this issue.)

  There's probably little doubt that BBS's and their callers use more
than their share of phone network bandwidth but at times when the
network is rather lightly loaded, so I think the attack is a little
misplaced. Given the costs of building and running the network and the
relation of those costs to peak usage (as a measure of sizing and
support) rather than overall usage, I don't see that you are
realistically subsidizing anyone, especially if a lot of *your*
activity is business realted during the daytime peak periods.

  This all comes back to the fact that, for the most part, there is no
competition in the local loop so that prices that the Baby Bells
charge reflect more on their desire for revenue and their ability to
bamboozle utility commissions with legions of economists, lawyers, and
lobbyists that those that would be produced by real competition.
Hence, as John Higdon as pointed out before, this is all probably part
of a strategic plan by the babies to eliminate flat rate service
altogether by initially by making it economically more attractive and
then eliminating the flat rate service when (virtually) everyone has
been motivated to switch. They will then be free to start escalating
per-unit/call charges.


Jeff Sicherman

------------------------------

From: Patrick Lee <[e-mail]>
Subject: Re: OBT and Flat-Rate Service
Date: Sun, 17 Jan 1993 18:32:41 -0500 (EST)


Our Moderator noted:

> I've never understood why people had such a big objection to
> simply paying for the service they use. We've had no flat rate
> service in Chicago outside a very small local area for many
> years ...

Me neither.  Most residents in New York City has untimed, but
measured, rate service.  Just about all the numbers in the 718/ 212
area codes are local to each other, with a few exceptions for border
areas.  I can't understand why so many phone companies out there still
have flat rate service and that their customers don't mind (and now we
have state legislatures trying to keep flat rates alive)!  I for one
like paying for what I use (and I do make over 300 local calls -- 10.6
cents a call with 40 and 65 percent discounts at different times).  I
have no problem with that even though I will probably be paying less
with flat rate.

I pay for what I use, fair is fair.


Patrick <[e-mail]>

------------------------------

Date: Sun, 17 Jan 93 11:07 PST
From: [e-mail] (John Higdon)
Reply-To: John Higdon <[e-mail]>
Organization: Green Hills and Cows
Subject: Re: OBT and Flat-Rate Service


On Jan 15 at  2:23, TELECOM Moderator notes:

> [Moderator's Note: I've never understood why people had such a big
> objection to simply paying for the service they use.

Then allow me to give you some. After reviewing many different LEC
proposals and conversions from flat rate to measured, a pattern
emerges. While at the instantaneous moment of the proposal the move
does appear to be revenue-neutral and simply shift costs from the
"Aunt Marthas" to the mean and nasty "modem users". But once approved,
the LEC is given great latitude with respect to the rates and charging
methods relating to that measured service.

In California, many residential customers were wooed into giving up
unmeasured residential service for measured when it was pointed out
how much money could be saved. What they were not told was that even
as we speak there is a proposal before the PUC to DOUBLE the
per-minute rate for local calls. Well, I suppose if you do not use the
phone, this is no problem. But then why have one if you do not use it?

A reality so far observed by the CPUC and the state telcos is that
residential traffic as a class is far under the peak capacity required
by business traffic, which universally pays for measured service.
Usage of the local network between 8 PM and 8 AM (even by those
despicable modem operators) is virtually down in the noise. For this
reason, even business and other measured service customers are given
an off-peak break. In my opinion, it should be free (included with the
basic charge).

The fact of the matter is that the price of no one's service would "go
down" as the result of univeral measured service. This is a can of
beans hinted at by telco to encourage passage of tariffs eliminating
unmeasured plans.

> We've had no flat rate service in Chicago outside a very small
> local area for many years, and for most subscribers, the cost for
> phone service actually went *down* when they were no longer forced to
> pay for all the modem users who went through thousands of units a
> month at flat rate.

This is complete nonsense. During off-peak hours, people who do not
use the phone never "subsidize" those who do. The network maintenance
costs are present even if NO ONE used the telephone at all. A "unit"
as you put it is not a commodity in the same fashion as an ounce of
gold. If I pick up the phone and make a local call at 11 PM and it is
not charged for because of my unmeasured service, there is not some
tiny cost that is now spread over the other millions of customers in
California. The cost to complete the call is zero and I was charged
zero. The cost that we all share is maintenance of the plant. Business
is charged for usage, because the construction of peak facilities is
usage-determined, and measured service in this case spreads the burden
equitably.

> the 90 percent plus of our population which does not use modems or
> make hundreds (or thousands) of calls each month was very pleased to
> see a reduction in their bills.

Oh? How much did your bill go down? If your service was degraded from
unmeasured to measured at the same time, this was not a cost reduction
but a forced COS change.

> When IBT ditched almost all the flat rate stuff a few years ago, the
> biggest objections came in the form of countless articles on BBS
> message bases from people talking about the greedy and awful old
> telco.

In the information age it is natural for the telco to want to cash in
big time. To do so on the back of the pioneers of that coming era
(when indeed those same people are in NO WAY increasing the telco's
cost of doing business) is to my mind completely reprehensible. You
have obviously swallowed the "equitable sharing of costs" argument for
mandatory residential service hook, line, and sinker. And, apparently,
so have the Illinois regulators. At least in California, it is
possible to have home access to electronic information without paying
through the nose, having the telco limit your number of lines, or
having telco otherwise stifle open residential use of the telephone.


Mandatory measured residential service opens the door for another
telco scam: Information Services. It is a simple matter for telco to
offer dialup online services that carry no local charges. Competitors
cannot do this except through the use of expensive 800 numbers. It has
long been believed that compulsory measured service is a precursor to
such inequitable arrangements.

> Count me as one who approves of 'pay for what you use'; I don't like
> paying subsidies for my neighbor's use of the phone. I don't do it for
> the electricity, water or gas they use, why should I for their phone
> calls via flat rate, averaged out pricing?

A telephone call is not a cubic foot of gas, a KWH of electricity, or
a cubic foot of water. All of these things are consumable commodities.
A telephone call is not. While long distance has been traditionally
priced in this manner, there are some valid, serious considerations
that even this may need to be changed eventually. Your comparison to
electrical, water, and gas usage is completely bogus, and your use of
such tells me that you have read all of the IBT propaganda and have
accepted it as gospel.

> But then again, I don't run war dialers against entire CO's
> or call computer chat lines in the outer fringes of 708/815.    PAT]

So what? How are the people that do this driving up IBT's cost, when
they do it in the middle of the night? Particularly when they use a
tiny fraction of the capacity that must be in place for the daytime
traffic?

When someone proposes a "measured day/unmeasured night" scheme, then
let's talk.


John Higdon  |   P. O. Box 7648   |   [phone]     |       FAX:
[e-mail] | San Jose, CA 95150 | 10288 0 700 FOR-A-MOO | [phone]

------------------------------

Date: Mon, 18 Jan 93 00:25:55 EST
From: Joshua E. Muskovitz <[e-mail]>
Subject: Re: OBT and Flat-Rate Service


> [Moderator's Note: I've never understood why people had such a big
> objection to simply paying for the service they use. We've had no flat

I would suspect that it is because people consider local phone service
to be a subscription service, just like the newspaper or cable TV.
With the newspaper, you pay the same amount every day, regardless of
the number of pages in the paper.  Why not pay by weight, or by
section?  Why not pay for cable by usage?  Because it is inherently
more convenient for the USER to conceptualize the charge and prepare
for it.  It would annoy me every month if my local phone bill was
different and I had to puzzle it out.  How am I going to assure myself
that I really made those calls?  With my long distance bill, I can
look at the city/number combos and identify 95+% of the calls
immediately.  Surely the LEC won't itemize the local bill, and even if
they did, how am I going to find out the 555-1234 is that wrong number
I dialed last month?

I realize that from the LECs perspective, matered billing now makes
sense because it is technically feasible.  But so what?  Why should a
regulated monopoly get to annoy its captive audience simply for higher
profits?


josh.

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End of TELECOM Digest V13 #30
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