[FCC and Ameritech delays]
Bob --
I've been at it for hours and my eyes are completely gone. Check out the FCC's working paper on Internet access issues, "Digital Toronado: The Internet and Telecommunicatiions Policy," dated March 1997.
fcc.gov
Beginning on page 36, there's a discussion on alternate access technologies. (Text only is 46pp.)
The following paragraphs include several on ISDN which if the tariffs are changed could encourage the deployment of xDSL. In part it says, ". . . the Commission should investigate areas where regulatory rules may either be preventing technologies from being deployed, or distorting investment patterns and incentives for innovation. ISDN tariffs and the application of the SLC to ISDN may fall within this category." Is this saying they may change the rules so ISDN won't be as lucrative and therefore LECs would have no reason not to offer the higher bandwidth DSL solutions?
The document addresses several of your queries and will stiumulate some good discussion, I'm sure.
Pat
<<< Alternate Access Technologies
A third set of answers involves alternate access technologies to replace the analog modems that most users now employ for Internet access. ISDN, which is available today in virtually all LEC central offices but is only used by a handful of residential customers, uses the network in a more efficient manner than analog modems, and also provides up to 128 kilobits per second of bandwidth. ISDN line units are generally non-blocking; in other words, ISDN is provisioned so that every line into a switch module has a corresponding path through the switch. However, ISDN is a circuit-based technology, and thus usage will continue to strain the PSTN. ****Other new technologies such as digital subscriber line (xDSL), which provides up to 6 megabits per second of downstream throughput over ordinary copper lines, promise to avoid this constraint. xDSL modems can be connected directly to a packet network, thus avoiding switch congestion at the same time as they increase bandwidth available to end users. **** However, although prices are dropping rapidly, xDSL modems are currently very expensive relative to analog modems, and a substantial (but not clearly defined) percentage of LEC loops may not be able to support xDSL without additional conditioning.
In the long term, the LEC industry has already begun planning to migrate its networks from their existing circuit switched architecture to an architecture based on asynchronous transfer mode (ATM) switching. ATM is designed to achieve some of the reliability and
quality of service benefits of circuit-switched technologies, along with some of the bandwidth efficiency and speed of packet-switching. ATM is now widely used in Internet backbones and corporate networks, but no ATM switches yet have the necessary features and functions
to replace existing LEC end office switches. In addition, a technical debate is now underway in the Internet community about the effectiveness of ATM as a data switching platform. LECs do not expect to even begin this transition for several years, and the transition itself is likely to take years to complete. Replacing existing end office switches will involve enormous costs. Although this network upgrade may provide a long-term solution, some more near-term action will be necessary as Internet usage continues to increase.
Alternate Network Providers
Many cable companies are in the process of deploying cable modems, which typically provide a maximum theoretical bandwidth of 10 megabits per second, although some newer cable modems offer only 1.2 megabits per second maximum bandwidth in order to reduce costs. Cable modems are an always connected, packet-based system, so they do not result
in switch congestion when used over a two-way cable system. However, cable companies have experienced technical difficulties deploying cable modems, as well as upgrading their networks and operations support systems to handle Internet traffic and the associated customer
support. These difficulties are aggravated by the highly leveraged position of most cable companies, which constrains their access to capital.
In order to deploy cable modems more cheaply and quickly, cable operators are now considering use of "one way" devices over unimproved cable plant. These one-way cable modems use the high-speed cable network for receiving data from the Internet, and a telephone line for upstream transmissions. ***Although this architecture reduces costs for the cable operator, it potentially increases the congestion of LEC networks, due to the long holding times.*** In addition, due to the reciprocal compensation requirements of the 1996 Act, cable networks that operate as competitive local exchange carriers may be entitled to
compensation for "terminating" LEC traffic over these connections.
Wireless systems are another promising means to break the bandwidth gridlock. Some companies, such as Metricom, already offer wireless Internet access at speeds comparable to analog POTS lines, typically through municipal 900 Mhz spread spectrum systems. Other wireless technologies, such as local multipoint distribution service (LMDS) and multipoint microwave distribution service (MMDS) are being tested specifically for Internet access applications. Wireless access provides not only a competitive alternative to LECs, but potentially a means for LECs to offload some of their Internet traffic while keeping their existing customers. Pacific Bell recently signed a wireless resale agreement with the wireless provider Winstar, in part to offload Internet traffic from Pacific s switches. Finally, satellites
may provide an alternative for some Internet access. Hughes recently began offering its 400 kilobits per second DirectPC service, ***although customers are required to purchase a satellite dish and the system requires use of an analog telephone line for the upstream channel. Thus, like one-way cable modems, the DirectPC service will not necessarily alleviate congestion of LEC networks, but may, in fact, increase it.***
4. State Tariffing Issues
The revenue effects of Internet usage today depend to a significant extent on the structure state tariffs. Internet usage generates less revenue for LECs in states where flat local service rates have been set low, with compensating revenues in the form of per-minute
intrastate toll charges. Because ISPs only receive local calls, they do not incur these usage charges. By contrast, in states where flat charges make up a higher percentage of LEC revenues, ISPs will have a less significant revenue effect. ISP usage is also affected by the
relative pricing of services such as ISDN Primary Rate Interface (PRI), frame relay, and fractional T-1 connections, which are alternatives to analog business lines. The prices for these services, and the price difference on a per-voice-channel basis between the options available to ISPs, varies widely across different states. In many cases, tariffs for these and other data services are based on assumptions that do not reflect the realities of the Internet
access market today. The scope of local calling areas also affects the architecture of Internet access services. In states with larger unmeasured local calling areas, ISPs need fewer POPs in order to serve the same customers through a local call.
5. Competitive Dynamics
To the extent that competitors, such as IXCs, cable, or wireless providers, are able to offer voice or data services to customers in competition with the LECs, there will be pressure on the LECs to lower their rates or otherwise take action to retain their customers. To the extent that such competition is driven by the underlying efficiencies and business strategies of companies using different technologies, such competition will benefit consumers. On the
other hand, to the extent that competitors are able to gain market share primarily as a byproduct of regulatory restrictions on the LECs, such competitive entry may have detrimental consequences. For example, some high-speed data architectures proposed by the cable and satellite industry only provide for downstream transmission. Unimproved cable systems, which were designed solely for the delivery of video programming into consumers' homes and not for interactive services, have this characteristic. Cable companies may choose
to use their infrastructure to deliver high-bandwidth downstream services to users, and use LEC telephone lines for upstream transmission to a local headend. LECs argue that such systems represent a regulatory anomaly that gives cable companies an unreasonable competitive advantage in delivering broadband services to residential users at rates that are in effect subsidized by the LECs.
Competitive alternatives to LEC facilities may also reduce the burdens on LECs. If cable companies and others enhance their networks to provide two-way service and attract Internet access customers on the basis of their ability to provide higher bandwidth at lower
cost, they may reduce or reverse the recent increase in Internet access through LEC networks. Such competition could reduce LEC revenues, because LECs would not receive any payments from Internet users that switch to cable or other providers, but the burden on LEC networks would also be reduced. An additional competitive dimension of Internet access pricing concerns the effects of imposition of access charges on ESPs. By raising the cost for most users of connecting to the Internet through LEC facilities, such a decision would likely increase the number of users who find alternative providers, such as cable, to be more cost- effective than the LECs. Although these alternatives today represent only a limited threat to
incumbent LECs, the possibility of such shifts should at least increase the pressure on LECs to price services to ISPs efficiently.V. Availability of Bandwidth
The Internet is only useful to people if they are able to access it, and the value of the Internet is, to an increasing extent, dependent on the level of bandwidth available to end users. Thus, issues of service availability and affordability, especially with regard to services that provide higher bandwidth than analog POTS lines, will be central to the development of the Internet as a mass-market phenomenon that benefits all Americans.
The Commission has historically played a major role in promoting "universal service," which has been understood as the availability of some basic level of telephone service to all Americans. Some universal service mechanisms, such as the Universal Service Fund (which provides assistance to high-cost LECs) and the Telecommunications Relay Service Fund (which underwrites services that allow people with hearing impairments to use telecommunications facilities), are explicit. Other support for universal service has
traditionally been provided through implicit subsidy flows, in which regulators have allowed certain rates to be set at levels far in excess of cost so that rates in high-cost or underserved areas can be set at levels deemed affordable.
The 1996 Act directs the Commission to preserve and extend universal service, but to do so in a manner consistent with the development of competition. In addition to the general
language regarding universal service funding, the 1996 Act contains several provisions dealing specifically with availability of advanced communications services. In particular, Section 254 (which promotes universal service) and Section 706 (which discusses incentives
for deployment of advanced telecommunications services) state:
(254)(b)(2) Access to Advanced Services.-- Access to advanced telecommunications and information services should be provided in all regions of the Nation.
(706)(a) The Commission ... shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms)....
In discharging these responsibilities the FCC must address two inter-related issues: the deployment and pricing of high-speed access technologies, and the availability of existing services to rural and low-income communities as well as schools, libraries, and others. A
major aspect of the Commission's role will be to foster the development of market-based solutions that make access to the Internet and other interactive services widespread and affordable. ***Beyond the specific universal service mandates of the 1996 Act, the Commission's primary focus should be to remove barriers to availability of high-bandwidth technologies, and to bring parties together to develop solutions, rather than to mandate particular deployment patterns.***
Universal service policies benefit the Internet because they expand the scope of the network. If more people can access the Internet, the value of connectivity will increase, and demand for Internet-related hardware, software, and services will be stimulated.
A. Deployment and Pricing of High-Speed Access Technologies
Most residential Internet access today uses ordinary analog POTS lines. Although POTS connections have fueled the explosive growth of residential Internet access in recent years, the low bandwidth available on these lines substantially limits the services that can be
delivered to users, and reduces the value of the Internet experience as users have to wait for information to be received. Several technologies that are either commercially available today or in development promise to remove these limitations.
Figure 11 lists some of the major technologies that may deliver high-bandwidth Internet access to end users. In almost every case, the actual throughput available to subscribers will depend on the particular infrastructure and customer premises equipment used, in addition to factors such as the location of the subscriber. The technologies listed are those which appear likely to be able to deliver substantially greater bandwidth to a significant number of
subscribers over the next 2-4 years. Other systems, such as those that extend fiber optic circuits to a small cluster of homes or event each individual home, may eventually supplant all these alternatives. Given current deployment plans and the expenses involved, however,
widespread implementation of such systems appears to be significantly farther in the future. Figure 11 -- Major End-User Internet Access Technologies
Technology
Downstream
Upstream
Summary
POTS
(analog voice
telephony)
28.8 - 33.6 kbps
(56 kbps in 1997)
28.8 - 33.6 kpbs
94% of homes have POTS service;
requires no additional telco investment
and only a computer and (inexpensive)
analog modem at the user premises.
ISDN
56 - 128 kbps
(230 kbps under
development)
56 - 128 kbps
(230 kbps under
development)
Approximately 70% of access lines
are now capable of supporting ISDN,
but less than 5% of Internet
subscribers use ISDN. New pricing,
standardization, and marketing efforts
may increase penetration in 1997.
xDSL
384 kbps (SDSL)
384 kbps (SDSL)
Significant deployment of SDSL and
HDSL today for corporate networks
and T1 service. Commercial ADSL
deployment by most telcos planned to
begin in 1997. Actual deliverable
bandwidth, especially for ADSL,
depends heavily on loop conditions.
768 kbps (HDSL)
768 kbps (HDSL)
1.5 - 8 Mbps
(ADSL)
12 - 500 kbps
(ADSL)
Cable Modems
1.2 - 27 Mbps
(shared capacity)
128 kbps - 10
Mbps (shared
capacity) or POTS
line used for
upstream
Several companies are deploying
infrastructure (e.g. @Home, Comcast,
Time-Warner), with commercial
availability in late 1996 or early 1997.
Many technical questions remain.
Wireless
28.8 kbps
(900 Mhz)
28.8 kbps
(900 Mhz)
These are only some of the
technologies under development that
could provide wireless Internet access
(NII/Supernet band and 2.3 Ghz
auction may also open spectrum for
this application). Actual bandwidth
will depend on environmental factors
as well as details of deployment.
1.5 Mbps (LMDS)
1.5 Mbps (LMDS)
1.5 Mbps (MMDS)
1.5 Mbps (MMDS)
Satellite
400 kbps
(DirectPC)
POTS line used for
upstream
Several other systems under
development.
B. The ISDN Case Study
ISDN is by far the most well-established and widely available higher-bandwidth access technology. ISDN uses existing twisted pair copper phone lines to transmit data at up to 128 kbps. Unlike analog modems, ISDN creates an end-to-end digital connection path, which
also facilitates faster call setup times and additional options using a built-in out-of-band "D" channel. In order to support ISDN, local exchange carriers must install digital line cards in their central office switches, and subscribers must purchase new "digital modems" to operate at their premises. Beyond this investment, however, ISDN does not require any significant reconfiguration of LEC networks in order to support higher bandwidth than analog transmission. ISDN technology has been commercially available for well over a decade, and
approximately 70% of existing local access lines in the United States are now configured to support ISDN.
At the present time, however, despite growing interest in ISDN as an Internet access technology, only a relatively small number of customers have ISDN lines in service. According to one study, approximately 1.4% of modem users connected to the Internet using
ISDN in early 1996. One barrier to more widespread deployment of ISDN has been the lack of standardization and the large number of site-specific parameters that must be configured when an end user wishes to purchase an ISDN line. Users must often determine a
host of arcane configuration options, and telephone company personnel must be trained in the various pricing and configuration options, in order for ISDN to be installed. Several steps are now being taken to address these provisioning problems, including "one stop shopping"
efforts by vendors such as Motorola and Microsoft that provide customers with a central point for ordering and obtaining information, and efforts by standards bodies and the local exchange industry to simplify the process of installing ISDN. Vendors such as AT&T, 3Com, and US Robotics have also launched efforts to make ISDN easier to install.
Many parties have argued that pricing is another barrier that has constrained ISDN deployment. Rates charged by local exchange carriers for ISDN service are regulated by state public utilities commissions, and these rates vary greatly from carrier to carrier. A March
1996 survey of ISDN tariffs showed a variation among major carriers between approximately $30 per month and over $300 per month for equivalent usage levels. Some ISDN supporters argue that even rates at the low end of this spectrum far exceed the incremental cost to telephony companies of supporting ISDN service. In many states ISDN is tariffed only as a business service, although residential ISDN offerings are increasingly available. In addition to the monthly rates, virtually all local exchange carriers now charge some per-
minute fees for ISDN usage above a designated threshold, or charge a higher monthly rate for a higher threshold or unlimited calling. Carriers argue that these usage-sensitive charges, especially for peak-period usage, are essential to avoid overuse of network capacity, but consumer groups and others claim that the costs of providing ISDN service are essentially fixed, and do not vary substantially based on usage.
An additional component of ISDN pricing is the federal subscriber line charge (SLC). Although the vast majority of ISDN rates are encompassed by the monthly rates and usage charges regulated by state commissions, ISDN users are also subject to the SLC, which recovers some of the interstate allocated costs of subscriber loops. For residential customers, the SLC is currently capped at $3.50 per line per month, and for multi-line businesses, the cap is $6.00 per month. Because ISDN is a derived channel technology that, in addition to providing greater data bandwidth, also allows multiple voice channels, the question has arisen as to whether multiple SLCs should be assessed on each ISDN connection. The FCC has requested comment on this question in the Access Reform NPRM, and has temporarily refrained from imposing more than one SLC.
As Internet usage and demand for higher bandwidth to the home has accelerated, many LECs have proposed new pricing structures for ISDN. In some cases, such as Bell Atlantic s April 1996 proposal, these new structures involve rate decreases. In others, such as Pacific Bell s January 1996 request to the California Public Utilities Commission, the new tariffs include substantially higher rates in response to increases in ISDN usage and concerns about additional costs to support this usage. Several state commissions are now review LEC residential ISDN tariffs, and are evaluating the incremental costs of offering ISDN service.
ISDN, however, is not a packet-based technology. Because of certain architectural efficiencies and the design of ISDN line cards in most local exchange switches, ISDN may place a less significant congestion burden on the network than analog connections. However, although digital, ISDN was designed to conform to the existing architecture of the circuit-switched voice network. Moreover, although ISDN provides greater bandwidth than POTS, it is insufficient for full-motion video and many of the new multimedia applications
that are rapidly becoming available. The unanswered question at this point in time is whether the window of opportunity for ISDN has passed, or whether ISDN, as the most mature and most widely available higher-bandwidth service, will be used increasingly over the next
several years.
****The FCC is interested in seeing higher bandwidth available to end users. However, the Commission's role is not to endorse any particular technology, or to artificially subsidize the deployment of such services generally. Instead, the Commission should investigate areas where regulatory rules may either be preventing technologies from being deployed, or distorting investment patterns and incentives for innovation. ISDN tariffs and the application of the SLC to ISDN may fall within this category. More generally, the deployment of high- bandwidth Internet access technologies may be constrained by the ability of competitors to take advantage of the existing network, either by purchasing existing tariffed services from local exchange carriers, or by leasing pieces of the network and combining them in new ways.****
The FCC's interconnection, access charge, and price cap rules will therefore influence the deployment of higher bandwidth. In addition, the Commission is in the process of developing a Notice of Inquiry on innovation, to seek comment on other ways that FCC rules can provide incentives for both incumbents and competing providers to invest in their networks and deploy new technologies. Ultimately, only the market will decide which of these investments are wise and which technologies will succeed, but the FCC must provide a level playing field for those market forces to operate.
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