Response to Pacific Bell application 95-12-043 ISDN Rate Restructure

California Public Utilities Commission Office of the Public Advisor Rm. 5303 505 Van Ness Avenue San Francisco, CA 94102

To whom it may concern,

I would like to formally file the following declaration and comments concerning the "APPLICATION OF PACIFIC BELL (U 1001C) TO INCREASE AND RESTRUCTURE CERTAIN RATES OF ITS INTEGRATED SERVICES DIGITAL NETWORK SERVICES (Application No. 95-12-043) filed Dec. 5, 1995.

Although I recognize that the usual comment period for such information is 30 days, I am an ISDN subscriber, and I was not notified of this proposal. Indeed, I did not know of it's existence until January 4, 1995, and only then because I happened to be in a Pacific Bell public office to pay my bill. Only on January 11, did I receive my copy of the application from Pacific Bell. Fortunately, Judge Malcom has extended the comment period to February 19.

The following is a response to the applicable portions of the proposal, including the first and second amendments and the first amended ex-parte motion in the order presented in the proposal as amended. It also quotes and responds to information contained in Pacific Bell press releases relating to ISDN and to this application.

With regard to Page 2 Paragraph number 2 regarding Rule 17.1. Proponent's belief that the project in question can have no significant environmental impact is absurd. In a day and age when we should be doing everything possible to encourage tele-commuting in lieu of the use of carbon-fuel burning vehicles, Proponent proposes to double the usage charges for ISDN during business hours and increase them more substantially during non-business hours. Clearly this proposal will create a strong negative financial incentive towards tele-commuting, creating an incalculable environmental impact.

With regards to Page 4, Paragraph number 2, there are two references to cost correlation. While I believe that the proposed charges may correlate to short term costs likely to occur during the rapid deployment of ISDN technologies by subscribers, many of these costs relate to upgrading infrastructure and provisioning service, which are non-recurring costs. Clearly, the costs of infrastructure have to be amortized over the life of the product (and the infrastructure components) and therefore must have some association with recurring charges. However, those costs should be associated with a monthly recurring charge. Provisioning costs and the costs of installation of repeaters and other needed devices which serve only a single customer circuit should be covered by the one-time installation charge. In terms of utilization, providing ISDN services has no differences to Pacific Bell from providing voice services, except that each ISDN line is capable of two channels. Since utilization billing for ISDN is based on a per-channel charge, there should, in fact, be no difference in cost to Pacific Bell for providing ISDN utilization vs. Analog Voice utilization per line. The vast majority of the infrastructure components required are identical and are already in place.

I would prefer to comment directly on Exhibit F, the cost study twice referenced by this paragraph. However, for reasons which escape me, Pacific Bell has successfully prevented public access to this portion of the filing. Since Pacific Bell claims that these cost studies are their sole basis and reason for this request, I believe that the public should be allowed access to the documents, cited as Exhibit `F', for the sake of public review and comment, as the inability to review them substantially affects our ability to comment on or rebut them.

Pacific Bell justifies sealing Exhibit F on the basis that it would place them at a competitive disadvantage and do irreparable harm. However, Pacific Bell has no competitors for Local ISDN access at this time and as such, this claim appears unwarranted.

With regards to the second paragraph (unnumbered) on page 5, Pacific Bell claims an overall average of 47 hours of night/weekend local usage per home. I believe this is likely to be true, but I don't believe it to be relevant to the proposed tariff changes. Pacific Bell's network is, and continues to be underutilized during this time period. If it were not, it would not make sense to have lower rates for utilization during that period. The cost of completing a B channel ISDN call or maintaining one is no greater than the cost of an equivalent voice call on the Pacific Bell network. They use exactly the same resources. I believe that instead of looking for ways to charge more for ISDN utilization, Pacific Bell should be seeking to make Home ISDN utilization costs match the utilization costs tariff for 1FR service. Further, the Business and Centrex ISDN utilization charges should be kept in line with the Business and Centrex utilization charges outlined for 1MB and for Centrex utilization.

The increase of $8/month for Centrex ISDN is probably a reasonable way to recover the increased costs of providing double-channel service free utilization within the Centrex group. Eliminating the installation waiver should have been done long ago. Capping the usage for Home ISDN at 20 hours/month makes absolutely no sense at all. Although it may be a small increase to the majority of subscribers on-line today, this is not the reality of the future. As more resources become available on the Internet and through other content and service providers, the utilization of ISDN in the home will experience a corresponding growth. The utilization pattern will shift towards much higher utilization. I am quite sure Pacific Bell is aware of this fact. By basing this decision solely on the existing data today, Pacific Bell stands to make a very substantial amount of money from people whose utilization pattern increases.

Waiving the $4 installation charge for the optional features is of minimal consequence to the customers. I suspect it is of minimal consequence to Pacific Bell. The Volume and Term related discounts proposed are equally inconsequential to all parties, and represent no real concession on the part of Pacific Bell. The intraLATA toll discount plan, while a potential savings to customers, serves as a bigger red flag that Pacific Bell is aware of the high profits this tariff is likely to produce.

With regards to page 8 paragraph number 3, I quote:

"We are proposing to increase the local usage charges on Home and Business ISDN in order to allow the customers as much flexibility as possible to control the cost of their ser- vice. These new ISDN prices are designed to generate revenues that should cover incre- mental costs for Home and Business ISDN, i.e. a revenue-to-cost relationship close to 1.0"

I now present my own interpretation of the paragraph:

We are proposing to more than double the overall price of Home ISDN while doubling the utilization price of Business ISDN instead of reflecting our actual recurring fixed line costs in the recurring monthly charges because we have figured out that the formula which cre- ates a revenue-to-cost relationship near 1.0 today will create an increasing number in the future. As a result. We know that the heavy users cannot afford to stop using the service, and that the light users will increase their utilization as more and more services become available via ISDN.

Again, making a detailed response to the above is impossible without Exhibit F. Further, making a strong argument in support of my interpretation of the above paragraph would also require Exhibit F. My interpretation is the result of my own personal knowledge of the issues involved in providing ISDN service, coupled with discussions with other ISDN service providers and several employees of Pacific Bell directly involved in providing ISDN service. I do not name the Pacific Bell employees here because those discussions occurred off the record and I believe that doing so would jeopardize their employment.

According to Form 10-Q Page 2, Exhibit A, Pacific Bell attempts to justify it's need for increased revenue to support ISDN service largely by a $3,360 Million loss, which, upon further reading turns out to be a non-cash loss that is strictly a one-time result of a change in accounting procedures. No actual money was lost.

Although actual net income is down ($258 Million vs. 1994 $292 Million), I do not believe this is solely the result of ISDN utilization. Further, Pacific Bell has, as of January 1, 1996, decreased sales-agency commissions on ALL ISDN offerings. They no longer pay any commission to sales agencies for Home ISDN, and have reduced by 50% all commissions for Business ISDN services. Pacific Bell has been reducing staff, which has resulted in significant one-time costs. Pacific Bell is making substantial upgrades to their Network Data Products infrastructure, including replacing most of their Frame Relay switches. These are substantial one-time unanticipated expenditures. These are just some of the things I am aware of as an outsider. I am sure there are many more issues involved in the $34 Million reduction in net income from this quarter last year. Making a sweeping change like this based on such a small shortfall would be unfair to the consumer and grant unfair advantage to Pacific Bell.

While the majority of the costs of providing ISDN which differ from the costs of providing standard POTS service are one-time installation and fixed-monthly-recurring costs, only two changes to those prices are proposed:

Elimination of the free installation with a 2-year commitment

An increase of $8 to Centrex ISDN service recurring monthly

Further, although Pacific Bell refers to the cost of providing service more than 15 kilofeet from the serving wire center, there is no proposal to amend the tariff to recover this cost as part of the installation or monthly recurring charges. There is precedent for such a charge in the POTS service offered by Pacific Bell. It was called a Suburban Mileage charge. People who lived more than a certain distance from their serving wire center were charged an additional amount depending on the distance. This additional amount applied to installation and to the monthly recurring charges. It did not affect the price of utilization.

In an additional absurdity, if the proposed tariff were implemented, it would now be more expensive to call 0-12 miles than to call 13-16 miles (zone 3) on ISDN. Hardly a logical system of pricing.

Also, 5.4.1.D.9 is modified, without fanfare, to include the word voice in the definition of services subject to the charges. I believe Pacific Bell has been, since the beginning of ISDN, billing for bearer-type Voice calls on it's ISDN service at the same rate as Data. As such, I believe all existing and past ISDN customers should be entitled to a refund of any charges applied against Bearer Type Voice B channel utilization.

In a press release on January 4, 1996, obtained via World Wide Web from the URL, Pacific Bell states to the public that there are two reasons to raise the costs of ISDN usage. First, the added cost of many rural subscribers. Second, the number of people nailing connections on nights and weekends.

The costs of providing rural service do not relate to utilization. Instead, they relate to fixed costs for installation and maintenance. Using an ISDN line more does not make it cost more to maintain. Therefore, any adjustment to pricing related to this issue should be an adjustment to the monthly price and/or the installation charge. Further, it is not fair for people who pay the generally higher cost of living in an urban area to have to subsidize the cost of installing and maintaining ISDN service to rural areas. In the past, analog phone service was subject to suburban mileage monthly surcharges, which reflected the increased cost of providing service to remote areas. There is no reason that such a charge could not be placed on ISDN, commensurate with the costs of providing said service.

The argument that people nailing connections on nights and weekends represents a substantial cost to Pacific Bell is specious. The people who are nailing ISDN connections are the same ones who were nailing POTS connections 24 hours per day. At this time, Pacific Bell can place a much worse spin on the numbers because a high percentage of ISDN subscribers are people who moved from POTS to ISDN for internet access. However, the internal costs of completing an ISDN call and a POTS call are identical. They both use a 64kbps isochronous channel. Providing nailed ISDN connections is no more expensive than providing nailed POTS connections. If usage is free, it could be argued that ISDN is capable of using two channels. While this is true, I believe it would be more appropriate to cover this by increasing the monthly charge than to add such an egregious price to every minute of utilization. I am quite sure that if Pacific Bell were to propose this as a modification to the 1FR service (residence flat-line), the PUC would consider it absurd. The difference in cost between Residential Flat Rate and Residential Measured Rate is $5.25/month, and the measured service provides a $3 usage allowance for local and ZUM 1, 2, or 3 calls. This leaves a real pricing difference for Zone 1 or 2 calls of $2.25 per month. I would happily pay the additional $2.25 or even $5 per month rather than face the proposed rate hike. Clearly, the $5.25 covers Pacific Bells costs of existing flat-rate service utilization.

It should also be noted that Pacific Bell in February, 1995, argued that a small increase in costs proposed by the FCC would "prevent [Pacific Bell] from selling that service which [Pacific Bell] has so diligently deployed". Pacific Bell sought and obtained a waiver from the FCC as a result of this claim. If a $3.25 increase per month for Home ISDN would prevent the product from being viable, certainly, the proposed rate restructure will kill it altogether. For more information on Pacific Bells argument in this matter, I refer you to the World Wide Web page

The major changes to the rate structure in this proposal relate to utilization charges. The infrastructure of providing a B-Channel for ISDN is identical to the infrastructure for providing a single voice call. The utilization costs for the infrastructure do not change based on whether it is an ISDN call or a voice call. The price should not either.

I urge the PUC to deny Pacific Bell Application No. 95-12-043.

I further urge the CPUC to order Pacific Bell to draft a new proposal in which ISDN service is offered based on an install charge which reflects Pacific Bell's actual costs of installation, including a surcharge for installations in locations more than 15 kilofeet from the serving wire center. The new proposal should include a monthly recurring charge which more directly reflects the costs of procuring and maintaining the infrastructure required to provide ISDN service. The new proposal should normalize the utilization costs of ISDN such that utilization of a single B channel on an ISDN circuit has an identical price structure to utilization of an analog voice circuit intended for similar use.

Further, should the PUC choose to substantially approve Application No. 95-12-43, I request that they require Pacific Bell to provide, at reasonable rates commensurate with existing Foreign Exchange tariffs, Centrex ISDN on a Foreign Exchange basis.

I certify under penalty of perjury under the laws of the California Republic that the foregoing is true and correct to the best of my knowledge.

Owen DeLong

California Citizen

Telecommunications Customer

Cc	Dan O. Jacobson, Pacific Bell
	Larry S. Bercovich, Pacific Bell
	T. D. Modol, Pacific Bell (via e-mail
	Maria Hancock, Pacific Bell (via e-mail