ISPs Challenge Bell Atlantic Impact Study

A study to investigate the impact of Internet service providers on the local telephone network is drawing strong reaction nationally after its authors at Bell Atlantic concluded that service providers are not paying their fair share of telephone charges.

On its World Wide Web page (http://www.ba.com/), Bell Atlantic carries a summary of the study, which recommends increased charges to Internet service providers.

The study was conducted in February and March by Timothy K. Stevens, director of Carrier Services for the Bell Atlantic Network Services, and James E. Sylvester, director of Technology Planning -- and sent to the Federal Communications Commission.

In the summary, they say, "Briefly, our study concludes that [Internet service providers] currently pay far less than the costs for carrying the traffic they generate on the telephone network. It points up the need for the FCC to consider the impact of Internet growth on other rate payers when it... reforms the access charge structure. The solution will involve not just pricing changes, but also Bell Atlantic making available new technology to more efficiently carry data traffic. Then the data traffic can be moved off the voice network and onto a separate data network."

Under what is called the enhanced service provider exemption, Internet service providers, unlike long distance carriers, are exempt from paying access charges to use the local telephone network to deliver their services to customers.

Several service provider industry giants and local providers voiced strong opinions about the conclusions and recommendations in the Bell Atlantic study.

Alan Taffel, vice president of marketing and business development for Fairfax, Va.-based UUnet Technologies Inc., says, "Not surprisingly, the report really is an attempt on Bell Atlantic's part to be rewarded for their failure to make affordable data services available to residential users. Instead of rewarding the years of failure, the FCC should instead mandate the unbundling of local loops at cost so that ISPs need not make use of the costly voice switches that we have no use for."

Bell Atlantic's position regarding cost recovery from ISPs is also misleading, said Taffel.

"Given a 20-year depreciation of the capital costs involved (normal for telcos, but not the basis used in the report), the monthly revenue is quite reasonable. The extraneous example of SMDS is puzzling. Why is it relevant to suggest that residential users can afford to use a largely obsolete technology that requires buying on the order of $10,000 of hardware for each home?" asked Taffel.

Bill Schrader, president and CEO of Herndon, Va.-based PSINet Inc., sees the Bell Atlantic study as self-serving and unsubstantiated.

"ISP traffic creates no more of a logjam on the telephony network than do teen-agers on the phone or people faxing. ISP data traffic is more efficient than voice transmissions. The cost of sending e-mail, unlike phone calls, is not distance-sensitive," said Schrader, who believes the growth of the Internet has exploded because of Judge Harold Green, whose decisions have allowed "the innovation and power of silicon to attack the entrenched telephony infrastructure."

In 1984 Judge Green of the U.S. District Court for the District of Columbia issued a modified final judgment against AT&ampT, forcing the breakup of the company into the current AT&ampT long distance company and several regional Bell operating companies, which provide local service.

According to Schrader, Green's decisions have benefited end users, whether they're Hewlett-Packard Co. or IBM Corp. or individuals at home.

Clyde Heintzelman, chief operating officer of Beltsville, Md.-based Digex Inc., says the FCC will not support Bell Atlantic's position.

"Some of this is posturing on the part of Bell Atlantic. The fact is the industry called ISP is not unique. Large-volume users of telephone traffic include the White House, bulletin board systems, Congress and facsimile services," said Heintzelman.

PSINet's Schrader believes the [regional Bell operating companies] are upset because prices have fallen.

"Regulations have been diluted and everyone has become more competitive," Schrader said. "For those of us who love to compete, that's a good thing. Those phone companies and cable operators who have never competed and don't know how have become afraid and run to the FCC to try to get reregulated," said Schrader.

Comments surfacing on the Internet are coming from as far as California after Internet maven and University of Pennsylvania professor David Farber posted the Bell Atlantic announcement on his mailing list.

In his note to Farber, Sky Dayton, founder and chairman of Pasadena, Calif.-based Earthlink Network Inc., said, "This would be disastrous for the growth of the Internet in the United States. These charges would be passed on as a measured rate to the end user, forcing down the average residential usage of the Internet. [Businesses already curtail usage due to daytime measured rates in most markets.]

The end result would be a considerable drop in residential usage of the Internet with a potentially disastrous domino-effect on all of the business models that rely on its continued growth.

In other markets, such as France, where the telephone company charges a measured rate for local residential calls, Internet use is curtailed.

Such areas could miss the renaissance, or at least get there much later than everyone else."

Among the facts uncovered in the Bell Atlantic study were that the peak period for all Internet service providers reviewed was after 10 p.m. with average peak-hour, line-usage rates exceeding 26 CCS. CCS, or hundreds of call seconds, is a measure of call traffic; one line supports 36 CCS (or 3,600 call seconds) per hour. For comparison, the figure for business/government customers was 12 CCS at 5 p.m and 3 CCS at 4 p.m. for all residential customers.

Over the four-week study, the average length of all Internet service provider calls was 18 minutes. This compares with four to five minutes for all other calls on Bell Atlantic's network.

Bell Atlantic claims that in the absence of pricing changes there is little incentive for the Internet service providers to try other, more efficient means of access, such as SMDS.

The seven service providers covered in the Bell Atlantic study generated 608 minutes of use per circuit over 24 hours on March 13. Using a $17 per month tariff rate per circuit, the study calculated that the service providers pay 0.09 cents per minute of use, which is about 1/22 of the per-minute rate of 2 cents per minute paid by interexchange carriers.

Further, the company estimates its monthly cost per subscriber line at $75.

The study's authors, Stevens and Sylvester, conclude that "the flat rate price encourages users to connect, and stay connected throughout the day [and evening]. Applications such as voice over the Internet can be most effective if the user's Internet connection stays on all the time. In effect, a circuit-switched architecture has been converted to a private line -- as a result of the pricing signal we are sending. Neither end users nor [Internet service providers] have sufficient incentive to utilize public-switched network resources efficiently."

According to Heather Boyles in FARNET's Washington Update, an Internet-based publication, FCC Chairman Reed Hundt has indicated that he is not in favor of removing the enhanced service provider exemption.

What is likely to be a political issue is unlikely to be resolved before the national election. Yet, given the growth of the Internet, it will remain an issue for Bell Atlantic and other regional Bell operating companies.