ADSL Cuts Have Far Reaching Implications
May 27, 1999
By Colleen Boothby for tele.com, CMPnet
Bell Atlantic has just offered an olive
branch to ISPs in a new tariff filed at
the Federal Communications
Commission.
The proposed tariff would establish
steep volume and term discounts for
ADSL service. But before the tariff can
take effect, however, Bell Atlantic will
have to persuade the FCC to buy its
interpretation of a controversial section in the 1996
re-write of the Communications Act.
Bell Atlantic currently offers three flavors of ADSL
depending on the downstream speed a customer wants: 640
kilobits per second, 1.6 megabits per second, and 7.1
Mbps. Upstream speeds for the 640 kbps and 1.6 Mbps
services are 90kbps; for the 7.1 Mbps service, upstream
is 680 kbps.
For each of these services, the new tariff would
establish 3-year and 5-year term plans. The 3-year
plans are targeted to fairly low-volume customers,
maxing out at 5,000 lines, and establish only modest
discounts of about 5-10 percent ($2.00 to $11.00 per
month off base rates of about $40.00 to $110.00 per
month). The 5-year plans are where the real discounts
are. At the highest discount level, for customers who
order a million lines, the monthly charges for all
three speeds drop by about 25 percent.
Relations between Bell Atlantic (or any telco, for that
matter) and ISPs aren't always warm and fuzzy. But
recent Bell company efforts to tie cheap ADSL service
to Internet access service from their affiliated ISPs
have made things worse. An unaffiliated ISP, whose
subscribers want to reach it using broadband services
like ADSL, will be at a competitive disadvantage if the
Bell company ISP affiliate gets preferential access to
its sister company's ADSL services and prices.
Bell Atlantic's tariff, however, is a step in the right
direction, because it seeks to establish generally
available discounts for customers who wish to buy at
higher volumes (such as ISPs).
But here's the legal hitch: When Congress re-wrote the
Communications Act in 1996, it inserted mandatory
discount requirements for any service sold at retail by
an incumbent ILEC. The ILECs must offer "wholesale
rates" for any basic telecommunications service they
sell "at retail" to subscribers other than fellow
common carriers. In addition, Congress put state
regulatory commissions in charge of setting the level
of the wholesale discount and even dictated how the
commissions should set the discount.
State commissions must start with the ILEC's retail
rate and back out any marketing, billing, collection,
and "other" costs that are avoided when the ILEC sells
on a wholesale basis.
The question now is whether Congress' wholesale
discount requirement applies to the already-discounted
volume and term plans for ADSL tariffed by Bell
Atlantic with the FCC. If the statutory requirement
does apply, ISPs might have to kiss ADSL volume
discounts goodbye because the ILECs will be reluctant
to tariff such discounts if it means living with
additional, state-imposed discounts.
On the other hand, parties can argue that the
high-volume, discounted ADSL service that ISPs order
for use by their subscribers is not a retail service
ordered by the ISPs' subscribers and therefore should
not be subject to the wholesale discount requirement.
Bell Atlantic's tariff even includes a paragraph
stating that the services provided under the volume and
term plans "are not services that the Company provides
at retail and, accordingly, are not subject to the rate
provisions" Congress imposed in the 1996 Act. The FCC's
resolution of these arguments will have a huge impact
on the willingness of other ILECs to offer ADSL
discounts.
And there's an added complication. ISPs have argued for
years that they should be treated like end users, not
long distance carriers, when it comes to paying access
charges. The FCC has gone along, permitting ISPs to get
their local network connections from end user tariffs
filed with state commissions rather than requiring ISPs
to pay the per minute access charges in federal access
tariffs. But the end user status of a customer may also
drive the decision to classify a service as retail (and
subject to the statutory discount) or wholesale: the
FCC wants to classify advanced services like ADSL as
retail services if they are offered "predominantly to
ordinary residential or business users or to Internet
service providers" rather than "telecommunications
carriers."
ISPs can argue that they aren't like ordinary end users
and are more like telecommunications carriers when they
buy high-volume ADSL offerings. But will treating ISPs
as wholesale customers of ADSL in order to protect
discounted ADSL services from retail status threaten
ISPs' end user status for access charge purposes?
The Bell Atlantic tariff is scheduled to take effect
June 3. Challenges to the tariff must be filed
immediately. The FCC can take action to tee these
issues up in a formal proceeding or it can ignore the
issues and let the tariff take effect as is. Or it can
work out some compromise position with Bell Atlantic
informally that would be reflected in revisions to the
pending tariff.
(c) 1999 CMP Media Inc.
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