Cybertelecom
Cybertelecom
Federal Internet Law & Policy
An Educational Project
Notes: Burden on the PSTN Dont be a FOOL; The Law is Not DIY
Notes > These notes are not complete and there is no guarantee that they are accurate. They are presented simply as notes. Feel free to use them but as with all material on the Internet Telecom Project, you should consider them a beginning to your research and not an end.

1 Internet Burden on Telephone Network *

1.1 Network Congrestion *
    1.1.1 Heaviest Load Between ISP and ISP CO *
    1.1.2 Response - Claims of Burden Overstated * 1.1.2.1 No Residential Problem *
1.1.2.2 CO/ISP Problem *
1.1.2.3 Telcos Offer of ISP service *
1.2 Economics \ Cross Subsidization \ Lack of Return *
    1.2.1 Cross Subsidization *
    1.2.2 Access Charge *
    1.2.3 Not a new Issue *
    1.2.4 Response: Bells Math is Wrong: Bells Making Money * 1.2.4.1 Bells Report High Earnings based on Internet *1.3 ESP Exemption *
    1.3.1 Pro Reform *
    1.3.2 Opposed to Reform *
1.4 Bypass LEC *
1.5 Telcos' Prayer - Solution: Give Us More Money *
  1. Internet Burden on Telephone Network
  2. Some parties argue that we should reclassify Internet service providers as telecommunications carriers in order to address congestion of local exchange networks caused by Internet usage. We note that the Commission addressed this argument last year in the Access Reform proceeding, and decided to continue to treat Internet service providers as end users for purposes of access charges. As the Commission stated in that Order, although concerns about network congestion deserve serious consideration, imposition of per-minute interstate access charges on Internet service providers is not an appropriate solution. Commenters in this proceeding have raised many of the same arguments that we considered in the Access Reform proceeding. We make no conclusions here as to whether some alternate rate structure for Internet service providers would be more efficient. That is an issue best addressed either on reconsideration of our Access Reform decision, or in connection with the Notice of Inquiry on Internet and Information Services that Use the Public Switched Telephone Network that we issued in the Access Reform proceeding. For purposes of this Report, we believe that the central issue is whether our decision that Internet access is not a "telecommunications service" is likely to threaten universal service. In other words, will Internet usage place such a strain on network resources that incumbent LECs will be unable to provide adequate service? As we noted in the Access Reform Order, both ILECs and the Network Reliability and Interoperability Council agreed that Internet usage did not pose any threat to overall network reliability. Incumbent LECs are investing in network upgrades to handle Internet traffic, and our Notice of Inquiry docket provides the appropriate forum to consider steps that we could take to ensure that incumbent LECs have incentives to choose the most efficient technology. - In re Federal-State Joint Board on Universal Service, Report to Congress, FCC 98-67 ¶ 100 (April 10, 1998).

    Moreover, at a certain point, Internet routers are simply unable to handle the load and will "drop" packets, causing network "brownouts." Such brownouts are already occurring. A group of high-energy physics researchers recently sent a memo to the Federal Networking Council complaining about "catatonic" connections that made it impossible to effectively share scientific data over the Internet.

    . . .

    The increasing levels of Internet use are also beginning to affect the telephone network. Carriers engineered and deployed their switches based on the characteristics of voice traffic, where a conversation lasts an average of three minutes and an average customer attempts about three calls per busy hour. Internet users, however, typically engage in far longer calls than voice users. As a result, Internet usage is placing unexpected demand on local exchange carriers' switches, to the point that switch congestion is threatening service quality for voice users of some switches.

    --Speech of Chairman Reed Hundt, Federal Communications Commission, INET '96 Convergence (June 28, 1996) (Delivered by Blair Levin, FCC Chief of Staff).

    "Leaky PBX traffic is far more significant in amount than the name would suggest." -- In Re MTS and WATS Market Structure, 97 FCC2d 682 & 80 (1983)

    "Pacific Bell estimates that calls to Internet-provided services could comprise up to 25 percent of its traffic by the end of the decade. US West projects that 30 percent of all local exchange traffic will be for access to the Internet by the year 2000. " In re Access Charge Reform, NPRM, Third Report and Order, and NOI, CC Docket 96-262 & 285 (Dec 24, 1996)

    Without pricing changes, ISPs have little incentive to adopt alternative forms of access." -- Timothy K Steven, Director-Carrier Services, Bell Atlantic Network Services, and James E Sylvester, Director-Technology Planning, Bell Atlantic Network Services, Superhighyway Traffic Taxes Current LEC Networks, Telephony Magazine, July 29, 1996 http://www.ba.com/ea/fcc/article.htm

    "For some time, however, incumbent LECs and others have argued that ESPs impose costs on the network that are similar to those imposed by providers of interstate voice telephony, and that ESPs should therefore pay interstate access charges. Several parties made this argument in their comments in response to a petition filed by America's Carriers Telecommunications Association (ACTA) earlier this year. In addition, four BOCs have filed studies in recent months purporting to show that the current pricing structure for Internet access contributes to the congestion of incumbent LEC networks. The BOCs claim that Internet users typically stay on the line far longer than voice users, but that the flat monthly rates Internet service providers pay to incumbent LECs do not cover the additional cost of network upgrades that are required to support such traffic. " -- In re Access Charge Reform, NPRM, Third Report and Order, and NOI, CC Docket 96-262 & 286 (Dec 24, 1996)

    "As you know, the ESP exemption was crafted some years ago to aid the fledgling information services industry, and there is increasing concern being expressed that this now robust and rapidly growing market segment will pose a severe capacity problem for a network designed and engineered to accommodate "traditional" traffic patterns. . . . NYNEX's current data show that the number of businesses and lines using this configuration is increasing about 10% per month . . . Our analysis of the data identified holding times of 20 to 40 minutes for this type of traffic, compared to 5 to 10 minutes for voice traffic, and it further shows that the holding time for the ISP traffic is correlated strongly to price structure. . . . Switches are engineered based upon peak loads occurring at single hours consistent with traditional office load traffic characteristics and call duration." Letter from Kenneth Rust, NYNEX, to James Schlichting, Chief Competitive Pricing Division, Federal Communications Commission (July 10, 1996)

    Applications such as voice calling over the Internet, e-mail and personal home pages accentuate the problem by encouraging users to connect and stay connected throughout the day. In effect, today's circuit-switched telephone network architecture is being converted into many private lines." --Timothy K Steven, Director-Carrier Services, Bell Atlantic Network Services, and James E Sylvester, Director-Technology Planning, Bell Atlantic Network Services, Superhighyway Traffic Taxes Current LEC Networks, Telephony Magazine, July 29, 1996 http://www.ba.com/ea/fcc/article.htm
     
     

    Stagg Newman, Bellcore, FCC Bandwidth Forum (January 23, 1997) (lsnj@bellcore.com).
     
     

    1. Network Congrestion

    2. Impact of ESP Traffic on Pacific Bell's Network: Lines used by ESPs are priced and engineered based on average traffic levels. Average busy hour traffic levels across all lines at Pacific Bell is 3 to 5 CCS (1 CCS = one-hundred call seconds, or 1.67 minutes of talk time). Central office switches are engineered to handle, on average, 3 to 5 CCS busy hour load for each line in an office. When busy hour loads exceed the traffic load averages on which switches and trunks are engineered, Pacific Bell has to re-engineer its switches and deploy additional office equipment and trunking. Modularized switches, such as the 5ESS, have switch groups with specific CCS capacities. We typically serve 32 lines from a signal switch group in the 5E. However, when an ESP established a large multi-line hunt group in an office, we are unable to provision the 32 lines on the switch group serving the ESP. We are finding that with some ESP hunt groups we can provision only 4 or 5 lines per switch group. In addition to the impact on switch groups, intraswitch trunking between line and trunk modules must often be increased to handle above average call loads. Plus, in many cases interswitch trunking must be augmented." -- Pacific Bell ESP Impact Study at 2 (July 2, 1996)

      "The output of the study was number of "hundred call seconds" (CCS) on an hourly basis. (There are 3600 seconds per hour, or 36 CCS if the line is used continuously during the hour). Our measuring system determined the time for each completed call per line, accumulated that usage on an hourly basis and converted the results into hourly CCS. For the peak hour of each segment studied, averaged over the four week period, the CCS results were as follows:
       
      SAMPLE SEGMENT AVERAGE PEAK HOUR CCS* PEAK HOUR FOR SEGMENT
      ISPs on 1MB (measured business) 26 CCS 11:00 PM
      ISPs on PRI (primary rate interface) 28 CCS 10:00 PM
      Business Customers with MLHG 12 CCS 5:00 PM
      Office average (entire central office) 3 CCS 4:00 PM

      * Maximum utilization is 36 CCS per hour

      . . . . . For the four week study period, the average length of all ISP calls was 17.7 minutes. This compares to approximately 4 to 5 minutes as the average for all other calls on our network.

      The results of the study clearly demonstrate traffic levels for ISPs which are significantly above normal customer traffic levels. " Report of Bell Atlantic on Internet Traffic ' 2 (March 1996) <http://www.ba.com/ea/fcc/report.htm>
       
       
       
       

      "Heavy traffic loads affect certain elements of the network, the primary elements being Line Units (LU), Switch Modules (SM), and interoffice facilities (IOF). Subscriber lines terminate into LU's when analog services are ordered (e.g. 1MB). Under normal circumstances (i.e. traffic loads in the range of 3 - 5 CCS), each LU can accommodate approximately 450 subscriber lines, with a maximum capacity of 512 lines. As traffic loads on incoming lines increases, the number of lines which the LU can accommodate decreases. If all lines are at the 25 - 30 CCS level, then the LU can accommodate only about 65 subscriber lines. This would mean a 7-fold increase in the number of LUs needed to accommodate the same number of lines at an approximate cost of $60,000 per LU. Since there are 7 LUs per SM, investments in SMs will also increase. The need to add LUs and SMs exists even if ISP traffic peaks at a different time than the central office as a whole, because this equipment is dedicated to individual lines and cannot accept overflow traffic.

      "Interoffice facilities (IOF) requirements are also engineered to meet peak requirements. The peak busy hour for IOF trunks will vary throughout the network, and is influenced by community of interest factors associated with customers served by the central offices. The emergence of Internet traffic has greatly increased the amount of IOF required to provide acceptable levels of service to all end users (regardless of whether PRI or analog lines are used). For example, the number of interoffice trunks in service for the switches in our traffic study increased 44% from June 1995 to June 1996 (a total of 16,585 trunks). Traditional growth expectations would have been in the range of 9% (3,397 trunks). The approximate capital cost of IOF is $1,350 per circuit. Thus an "above normal" investment of $17.8 million was required for the additional 13,188 IOF trunks for these 9 central offices. " Report of Bell Atlantic on Internet Traffic ' 3 (March 1996) <http://www.ba.com/ea/fcc/report.htm>

      "ESPs use their lines up to six times more than other users during the office busy hour, and up to nine times more than other users during their hunt group." -- US West Communications ESP Network Study at 1 (June 28, 1996)

      "The network is nominally engineered for a POTS line at 3.32 CCS (or 5.64 minutes) per line.  This allows one line unit within a switch module to service approximately 500 POTS lines. When the heavy usage of an ESP line is not identified and accounted for in the design, blockage occurs. To serve the same 500 POTS lines for an ESP, almost six times the number of line units are required based on an estimated average of 19.1 CCS (or 32.47 minutes) per ESP line. Based on our estimate of approximately 120,000 ESP lines, US WEST would be forced to engineer the switch line units to serve an equivalent of 720,000 non-ESP POTS lines. This is a significant impact, and given the projected expansion of Internet usage, it must be addressed by FCC policy." -- US WEST Communications ESP Network Study at 2 (June 28, 1996).

      [Fact that Pacific Telesis is moving aggressively into the ISP industry does not mean that the problem does not exist. We would be foolish to ignore a significantly competitive are of the market. PB will continue to be competitive in ISP business. There are about 1 million Internet users in California for those users, the aver user per day is 62 minutes a day on the net. The average residential customer uses 22 minutes of all other calls per day. We had 23 billion minutes of internet use last year. This uses up ports and trunks in our network. ] -- Lee Bauman, Pacific Telesis, FCC Bandwidth Forum (January 23, 1997)
       
       

        1. Heaviest Load Between ISP and ISP CO

        2.  

           
           
           
           
           

          "Even though calls from end users (for example, people dialing up over modems from their homes) increase traffic loads on the central offices that serve the end user, the heaviest concentration of traffic loads are occurring in the central offices that serve the ISPs." Report of Bell Atlantic on Internet Traffic ' 2 (March 1996) <http://www.ba.com/ea/fcc/report.htm>

          "The ESPs' highly concentrated use of their lines does have an impact that adversely affects our local network . . . In order to avoid the blockage experienced by these customers, US WEST is forced to redesign the network to account for the usage patterns of ESPs, and thus incur additional costs. These costs of serving ESPs include:

          * additional in unites in the switch servicing the ESP

          * expense associated with load balancing the switch serving the ESP

          * usage costs (not recovered in flat rate local service)

          * increased interoffice trunking

          * potential expansion of capacity at the switch serving the ESP's end user

          * excess construction costs for man of the local ESP lines.

          US WEST Communications ESP Network Study at 1 (June 28, 1996)

        3. Response - Claims of Burden Overstated

        4.  

           
           
           
           
           

          Jamie Love, CPT, FCC Bandwidth Forum (January 23, 1997)

          James Love, Consumer Project on Technology, Prepared Comments on the FCC Forum on Access to Bandwidth (January 23, 1997) <http://www.essential.org/cpt/isdn/bandwidth.htm> ("there is no evidence that current residential modem usage is placing greater demands on the public switched network than non-modem usage . . . Because call setup consumes network resources, one long call is actually cheaper than several shorter calls which sum to the same total minutes").

          Hundt Asks Network Reliability and Interoperability Council to Monitor Impact of Internet Growth on Public Networks, FCC News Release (November 1, 1996). See also Minutes of the October 31, 1996 Meeting of the Network Reliability and Interoperability Council & 36 - 37 <http://www.fcc.gov/oet/info/orgs/nric/meetings/m961031.html> (accessed January 28, 1997) ("Internet traffic does not tend to produce sudden strains on the network as would a network overload . . . it is not likely that the Internet as it is presently being used could cause a reportable outage. So the NRSC believes the Internet traffic is not an imminent risk to network reliability . . . Internet growth does not pose any unusual network reliability hazards . . . Internet growth represents a capacity management challenge").

          See Fred Goldstein's November 1996, Maryland ISDN testimony, at http://essential.org/cpt/isdn/MD-fgolsteinest.html.

          "Data communications traffic poses no significant threat to network integrity at the present time."--Information Technology Association of America, The Effects of Internet Use on the Nation's Telephone Network, Executive Summary (1997) <http://www.itaa.org/isec1.htm> (accessed January 28, 1997)

          "These studies, however, are not comprehensive assessments of the impact of data traffic on local telephone network. Rather, they rely on anecdotal evidence drawn from a few unrepresentative central offices, along with some theoretical claims. An examination of these studies reveals that the BOCs' congestion claims are overstated and their assertions that they are inadequately compensated for data traffic ignore substantial revenues attributable to such traffic."-- Information Technology Association of America, The Effects of Internet Use on the Nation's Telephone Network, Executive Summary (1997) <http://www.itaa.org/isec1.htm> (accessed January 28, 1997)

          1. No Residential Problem

          2.  

             
             
             
             
             

            "AOL reportedly was engineered to allow about 3 percent of its consumers to connect at any one time. Now AOL is expanding its network, so that it will have about 400,000 incoming lines, for about 8 million customers -- about one line for each 20 customers. This will permit 5 percent of the AOL customers to be connected at any one time. Based upon our research, most ISPs have 10 and 20 customers per incoming line, allowing a maximum of 5 to 10 percent of customers to be connected at any one time. This is hard constraint on residential consumers. They can't connect in large numbers because the ISPs have limited capacity." --James Love, Consumer Project on Technology, Prepared Comments on the FCC Forum on Access to Bandwidth (January 23, 1997) <http://www.essential.org/cpt/isdn/bandwidth.htm>

          3. CO/ISP Problem
          4. Telcos Offer of ISP service
      "The BOC's own recent efforts to enter the market as ISPs/ESPs undermine their argument that data traffic threatens the PSTN as a whole. If increases in on-line service traffic posed a significant threat to their networks, the BOCs would not be exacerbating the problem by offering unlimited Internet access for a flat rate." -- Information Technology Association of America, The Effects of Internet Use on the Nation's Telephone Network, Executive Summary (1997) <http://www.itaa.org/isec1.htm> (accessed January 28, 1997)

      "The Commission should be wary of proposals that would impose new fees on ISPs which compete with LECs. In California, PacBell was petitioning the FCC to eliminate the ISPs enhanced service exemption (ESP), because of the alleged congestion problems that Internet users are imposing on the public switched network. At the same time, PacBell was promoting second residential telephone lines, priced at $11.45 per month, by running promotions that read:

      Order another home phone line today and get 5 months free unlimited Internet access with Pacific Bell Internet. Act now and we'll waive the usual $14.95 sign-up fee for Pacific Bell Internet.

      "Aside from the outrageous hypocrisy of running both this promotion and a PR battle that asserted Internet users were causing unbearable network congestion, it demonstrates the dangers facing independent ISPs. If you ran a California ISP, wouldn't it be hard to compete with a firm that was giving the service away free for 5 months?

      "Indeed, several LECs are running promotions for residential second POTS lines. These are typically priced below what the company claims are its average NTS costs. The lines also do not typically generate any new toll traffic. (People don't get second lines to make two long distance calls at the same time). Since these second lines are marketed to modem users, one has to doubt the LECs complaints about network congestion. It is also reasonable that the $11.25 per month for a PacBell second line is actually above PacBell's costs."

      --James Love, Consumer Project on Technology, Prepared Comments on the FCC Forum on Access to Bandwidth (January 23, 1997) <http://www.essential.org/cpt/isdn/bandwidth.htm>
       
       

    3. Economics \ Cross Subsidization \ Lack of Return

    4.  

       
       
       
       
       

      "Internet growth should not occur in ways that require cross-subsidization by non users of the Internet, or worse, lead to potential disruption of vital public safety services such as 911 emergency call service." Report of Bell Atlantic on Internet Traffic (March 1996) <http://www.ba.com/ea/fcc/report.htm>

      For the nine Cos studied, this above-average growth necessitated an additional $17.8 million investment in trunks alone" -- Timothy K Stevens and James E Sylvester, Superhighyway Traffic Taxes Current LEC Networks, Telephony Magazine, at 1 July 29, 1996

      "The ESPs' highly concentrated use of their lines does have an impact that adversely affects our local network . . . In order to avoid the blockage experienced by these customers, US WEST is forced to redesign the network to account for the usage patterns of ESPs, and thus incur additional costs. These costs of serving ESPs include:

      * additional in unites in the switch servicing the ESP

      * expense associated with load balancing the switch serving the ESP

      * usage costs (not recovered in flat rate local service)

      * increased interoffice trunking

      * potential expansion of capacity at the switch serving the ESP's end user

      * excess construction costs for man of the local ESP lines.

      US WEST Communications ESP Network Study at 1 (June 28, 1996)

      "The cost impact figures that appear in the Report . . . demonstrate the type of cross-subsidies that increase Internet use is causing, and can be expected to cause in the future." Letter from Joseph Mulieri, Bell Atlantic to James D. Schlichting, Chief, Competitive Pricing Division, Federal Communications Commission (June 28, 1996) (summarizing report in cover letter to the report).

      "current revenues derived from local services provided to ISPs do not come close to recovering the cost of providing service. Hence a cross subsidization is occurring between users of ISP services and all other users.

      The network elements most affected by heavy traffic loads from ISPs are line units, switch modules and interoffice trunking. Per subscriber line served, these units generally result in a capital cost of approximately $245. This assumes the normal traffic load of 3 to 4 CCS. However, as CCS approaches 30, the capital costs for these units approaches $2400 per subscriber line, because of the reduced number of lines they can serve and the increase in interoffice traffic. As shown below, this translates into an approximate monthly cost per subscriber line of $75, compared to the average tariff rate of about $17 per month. Preliminary studies show that the comparable monthly cost per subscriber line for PRI circuits is estimated to be $50. " Report of Bell Atlantic on Internet Traffic ' 4 (March 1996) <http://www.ba.com/ea/fcc/report.htm>

      "Utilizing the 40,000 average ISP circuit count (roughly 50% analog and 50% PRI) and the estimated monthly cost per circuit ($75 cost per month per analog line and $50 per month per PRI), the total estimated cost of serving ISPs in 1996 is $30 Million. Assuming average revenue from ISPs for these lines was $17 per month per line, total revenues from this segment in 1996 for public switched network service would be $8.2 Million. Thus there is a cross subsidy of approximately $22 Million for 1996. Assuming an annual growth rate of 40% for illustrative purposes, this cross subsidy would grow to approximately $120 Million in five years. " Report of Bell Atlantic on Internet Traffic ' 4 (March 1996) <http://www.ba.com/ea/fcc/report.htm>

      "ESPs effectively pay 12% of what interexchange carriers pay for comparable interstate switched access service. It has also caused Pacific Bell to incur additional costs to increase network capacity as Pacific has already identified $13.6 million in central office re-engineering costs for 1996 associated with providing business lines to ESPs . . Yet, Pacific Bell receives no additional revenues from ESPs due to the ESP Exemption." Letter from Alan Ciamparcera, Pacific Telesis, to James Schlichting, Common Carrier Bureau (July 2, 1996)

      "Based on measured call volumes from a sample of ESP lines, the average ESP line handles approximately 125,000 minutes of calls per year. ESPs pay an average of about $20 per month per access line (including EUCL). Based on 111,000 lines, approximate annual revenues to Pacific Bell paid by ESPs for access is $26 million. This results in an effective per minute rate for ESPs of just over $0.0002 per minute, or about 12% of what interexchange carriers pay for interstate switched access (an average of about $0.018 per minute)." -- Pacific Bell ESP Impact Study at 1 (July 2, 1996).

        1. Cross Subsidization

        2.  

           
           
           
           
           
           
           
           
           
           
           
           
           

          "US WEST believes that it is time for the FCC to address the implicit subsidy and inconsistency in the application of access charges inherent in the "temporary" ESP Exemption." -- US WEST Communications ESP Network Study at 2 (June 28, 1996)

          Pat White, Bell Atlantic, FCC Bandwidth Forum (January 23, 1997).

          For Bell Atlantic, an estimated 40,000 ISP circuits will run throughout its region during 1996 -- half on primary rate ISDN and half on analog lines. Current estimated monthly costs per ISP circuits are $75 per analog line and $50 per primary rate ISDN circuit for a total estimated annual cost of $30 million. On the other hand, revenues from these circuits are estimated to be $8 million. Timothy K Steven, director-Carrier Services, Bell Atlantic Network Services, and James E Sylvester, Director-Technology Planning, Bell Atlantic Network Services, Superhighyway Traffic Taxes Current LEC Networks, Telephony Magazine, July 29, 1996

        3. Access Charge

        4.  

           
           
           
           
           

          "The ISPs in our traffic study generated on March 13 (the same day selected for the graphs attached to this report) 608 minutes of use per line over the 24 hour period. Based on payment of $17 per month per line, the ISPs pay 56 cents per day, or $.0009 per minute of use. This contrasts with Bell Atlantic's interstate switched access charge of approximately 2 cents per minute. In effect, ISPs are paying 1/22 of the equivalent per minute rate paid by IXCs during a business day. At these levels, ISPs would have little incentive to adopt voluntarily alternative forms of access. " Report of Bell Atlantic on Internet Traffic ' 5 (March 1996) <http://www.ba.com/ea/fcc/report.htm>

        5. Not a new Issue

        6.  In the Notice initiating this docket, we expressed concern that the charges currently paid by enhanced service providers may not contribute sufficiently to the costs of the exchange access facilities they use in offering their services to the public. We observed that to the extent enhanced service providers are exempt from switched access charges, other users of exchange access are forced to bear a disproportionate share of the local exchange costs that access charges are designed to cover. We reiterated our view that rate shock, which provided the original basis for the special treatment of enhanced service providers, justified a temporary but not a permanent exemption, and we tentatively concluded that an access charge exemption was no longer appropriate. [11] " -- In re Amendments of Part 69 of the Commission's Rules Relating to Enhanced Service Providers, 3 FCC Rcd 2631 & 2 (1988)
        7. Response: Bells Math is Wrong: Bells Making Money

        8.  

           
           
           
           
           

          James Love, Consumer Project on Technology, Prepared Comments on the FCC Forum on Access to Bandwidth (January 23, 1997) <http://www.essential.org/cpt/isdn/bandwidth.htm> ("there is no evidence that current residential modem usage is placing greater demands on the public switched network than non-modem usage . . . Because call setup consumes network resources, one long call is actually cheaper than several shorter calls which sum to the same total minutes").
           
           

          1. Bells Report High Earnings based on Internet
      "Regional telephone companies reported strong fourth-quarter results Tuesday, powered by growing demand for Internet phone lines, wireless and other services like caller ID and call waiting . . . The part of San Francisco-based Pacific Bell, said its earnings before adjustments were driven by expanding business data delivery and new custom calling services, as well as increases in access line and minutes-of-use volume." - Internet Demand helps power regional Bell earnings, CNN-Features (Sci-Tech), Pointcast (January 21, 1997) (reprinting Reuters article).

      "BOCs receive substantial revenues from users through monthly charges for additional access lines and ISDN lines, and through usage-sensitive fees, as well as from the ISPs/ESPs themselves for the various basic and vertical services and features that they use. This study concludes that, nationally from 1990 through 1995, the local exchange carriers have collected more that $3.5-billion in revenues from additional residential access lines for subscribers who use them solely or primarily for calling ESPs/ISPs.

      "In 1995 alone, some 6-million residential subscriber lines were used exclusively or primarily for online access. Total (nationwide) revenues from additional residential access lines whose installation was driven by the subscriber's use of on-line services reached $1.4-billion in that year."

      "Compared with Bellcore study estimate that reinforcing the PSTN will cost some $35-million per year per BOC (for a total of $245-million, nationally), additional residential access line sales stimulated by the growth of on-line services generate revenues that exceed this figure by a factor of six." --Information Technology Association of America, The Effects of Internet Use on the Nation's Telephone Network, Executive Summary (1997) <http://www.itaa.org/isec1.htm> (accessed January 28, 1997)

      "The increase in data communications traffic has produced additional revenues for the local exchange carriers that far exceed their costs in accommodating that traffic." -- Information Technology Association of America, The Effects of Internet Use on the Nation's Telephone Network, Executive Summary (1997) <http://www.itaa.org/isec1.htm> (accessed January 28, 1997)

      "their assertions that they are inadequately compensated for data traffic ingore substantial revenues attributable to such traffic."-- Information Technology Association of America, The Effects of Internet Use on the Nation's Telephone Network, Executive Summary (1997)

      "The growth of Internet and online service providers has generated significant new revenue streams for local exchange carriers. At the same time, because the heaviest Internet traffic is at non-peak times for the PSTN, this traffic is actually lowering the local telephone companies' per-minute cost of providing service by utilizing capacity that would otherwise lie idle. The Study finds that the Bell companies did not consider these significant economic benefits when they claimed that their infrastructure investments for managing increased data communications traffic are uncompensated. --Information Technology Association of America, The Effects of Internet Use on the Nation's Telephone Network, Executive Summary (1997) <http://www.itaa.org/isec1.htm> (accessed January 28, 1997)

    5. ESP Exemption
        1. Pro Reform

        2.  

           
           
           
           
           
           
           

          "Perhaps the most significant shortcoming of existing service arrangements provided to ISPs is the flat rate per month. For about $17 per month, an ISP can utilize lines from the public switched network that can be literally filled to capacity. . . . Neither end users nor ISPs have sufficient incentive to utilize public switched network resources efficiently. . . . A usage sensitive price (related to the traffic sensitive costs in our local network) is needed to send the appropriate signal to use the public switched telephone network efficiently." Report of Bell Atlantic on Internet Traffic ' 5 (March 1996) <http://www.ba.com/ea/fcc/report.htm>

        3. Opposed to Reform
      "The long-term solution for accommodating increased data traffic lies in the stimulation of competition and in the deployment of appropriate data-friendly network technologies, and not in the imposition of per-minute access charges for use of the current voice-oriented circuit-switched network." -- Information Technology Association of America, The Effects of Internet Use on the Nation's Telephone Network, Executive Summary (1997) <http://www.itaa.org/isec1.htm> (accessed January 28, 1997)
    6. Bypass LEC

    7.  

       
       
       
       
       

      Many companies use a PBX and similar leased lines to bypass the local telco facilities, and getting a discount from their inter-exchange carrier. It is hard for the local telco to claim they are putting extra strain on the local telephone infrastructure, when the company is bypassing the local infrastructure." << This comment is misunderstanding the situation - the author is referring to ISPs connection to the net, not the ISPs connection to the end user >>

    8. Telcos' Prayer - Solution: Give Us More Money
    The all-purpose, local telephone network has changed and adapted to meet customer needs ever since telephones began to be widely deployed in the 1880s. However, one aspect has remained constant during much of that time: The primary application was voice -- people calling other people. But, today's network increasingly carries data, including communications to and from the Internet. Outlined below are observations based on recent study identifying how traditional voice-based pricing structures are encouraging inefficient use of the local telephone network, and are causing customers who do not access the Internet to pay for the network costs created by those who do. A better approach is to eliminate artificial pricing arrangements that discourage use of improved technology." Timothy K Steven, Director-Carrier Services, Bell Atlantic Network Services, and James E Sylvester, Director-Technology Planning, Bell Atlantic Network Services, Superhighyway Traffic Taxes Current LEC Networks, Telephony Magazine, July 29, 1996 <http://www.ba.com/ea/fcc/article.htm>

    -- -Timothy K Steven, Director-Carrier Services, Bell Atlantic Network Services, and James E Sylvester, Director-Technology Planning, Bell Atlantic Network Services, Superhighyway Traffic Taxes Current LEC Networks, Telephony Magazine, July 29, 1996 <http://www.ba.com/ea/fcc/article.htm>

Packet Switching Proceedings

Packet Communications Inc

1. The Commission has before it for consideration the above-captioned application, filed January 23, 1973 and amended on June 21, 1973, by Packet Communications Inc. (PCI), a Massachusetts corporation, pursuant to Section 214(a) of the Communications Act and Section 63.01 of the Commission's Rules seeking authority to institute and operate a communications network providing terminal-computer and computer-computer communications utilizing technology known as 'packet-switching.'
 2. 'Packet Switching' technology was initially developed by U.S. Government sponsored research for the Department of Defense Advanced Research Projects Agency (ARPA). Unlike the conventional telephone system, in which circuits are switched to provide an individual customer with exclusive use of a particular line or circuit, a 'packet switching 'circuit transmits small groups (packets) of digitized data over a network of lines to a designated recipient, usually a computer. These packets are stored and forwarded over the best available path through the network.
 3. The service applicant initially proposes is characterized by it as a 'value added' service in that it will take channels leased from other carriers and combine them with computers and software to transmit data more efficiently and with less error. It states, 'In the rapidly developing computer technology field, it is likely that other types of 'value added' innovations will appear which may require the development of new Commission specifications, rules, definitions, and processing criteria.' However, in order to expedite the initiation of the offering of service, PCI is willing to have itself treated as a traditional common carrier, whether or not the Commission will ultimately determine that such service should be regulated by it as 'common carriage', and whether or not it will require the filing. The channels leased from other carriers will be used to link computers and terminals through mini-computers to transmit data 'packets' of approximately 1000 data bits each. Charges to customers will be based upon the numbers of packets sent independent of distance. The service will be message switching as defined by Section 64.702 of the Commission's Rules. It does not intend to offer 'data processing' services at this time. Purpose of the network would be to serve various data transmission markets. PCI anticipates that the initial phase of its network will connect some 20 cities and ultimately (1978) some 57 cities.
 4. PCI now proposes to establish initially one 50 Kilobit per second line, between 26 pairs of cities which are located throughout the contiguous United States. Users will be able to interconnect with PCI's network in either of two modes, namely, computer connections through its mini-computers ('Packet Switching Processors (PST's)) or terminal connections whereby access from terminals to the various customer computers (hosts) will be provided by means of 'Terminal Access Processors' (TAP's). PCI also states that the entire network will be supervised and monitored by two Network Operations Centers (NOC's), one in the Boston, Massachusetts area and the other in the western area of the United States. PCI anticipates that the initial phase will be in operation by the first quarter of 1975. [1]
. . . . .
14. With respect to the concerns expressed by MCI and DATRAN, we recognize that the entry of 'value added' carriers such as PCI into the market for communication services will of course impact upon the structure of the industry. It will, however, introduce new and improved means by which users having data transmission requirements may satisfy those requirements in a manner not now available from any generalized or specialized carrier. For this basic reason, we see no justification to postpone further action on PCI's proposal.
 15. We also agree that there are a variety of basic issues that remain to be resolved with respect to the terms and conditions including certain restrictions (See discussion in letter granting AT&T's Tariff Appl. 931) reflected by AT&T's tariffs and applicable to the transmission facilities PCI proposes to lease from AT&T. Mindful of these important issues, we plan in the near future to institute an appropriate proceeding to examine the reasonableness and lawfulness of AT&T's tariff provisions with respect to shared use and resale of its private line services and facilities. That proceeding will take account of and fully treat the questions raised by the MCI carriers in their petition for rule-making which is now pending.
 16. Further, it is our opinion that the services PCI initially will offer the public over its proposed facilities would constitute PCI a common carrier within the meaning of Section 3(h) of the Communications Act and thus subjects PCI to the certification and other applicable requirements of Title II of the Communications Act. In the event that PCI in the future should seek to modify its basic service offering in a manner that will alter its status as a common carrier (e.g. the offering of data processing as well as data transmission services), PCI will be obliged to obtain prior authorization for such change of status and service. Our authorization herein will be limited to the provision of its 'Package switching' data message service offering.
 17. Concerning the recommendations that the Commission pursue a policy of 'open entry' with respect to multi-purpose packet switching networks, it is our present intention to follow a liberal policy of authorizing such operations. It is apparent that there is a growing market to be serviced by such operations and that existing common carrier services are not now available to satisfy the demands of that market. In this respect, we feel that the findings and philosophy reflected in our Specialized Common Carrier decision in Docket 18920 dealing generally with the market for data transmission and other specialized services are relevant and apposite here and support a competitive environment for the development and sales of the type of services proposed by PCI.
 18.On the basis of the information submitted in the application we find that PCI has substantially complied with the applicable provisions of Section 214 and Part 63 of our Rules to the extent that it can be permitted to lease and operate the associated equipment for the establishment of a packet-switched network. We conclude that the present and future public interest, convenience and necessity will be served by a grant of PCI's application.
-- In The Matter Of The Application Of Packet Communications Inc. For Authority Under Section 214(A) To Institute And Operate A Packet-Switching Communications Network In The Contiguous United States By Leasing Inter-Exchange Lines From Established Communications Common Carriers, File No. P-C-8533, Memorandum Opinion, Order And Certificate (November 16, 1973)

Telenet Application 1973

Description

2. Telenet plans to establish central office facilities containing Interface Message Processors (IMP) or Terminal Interface Processors (TIP) or Satellite IMPs (SIMP) to which customer's computers and terminals can be connected, and to interconnect these facilities by means of high speed transmission facilities leased from existing carriers. Telenet's application requests authority to establish its packet switching facilities initially in 18 cities. However, within four years Telenet plans to expand its network through the installation of packet switching facilities in an additional 44 cities. Appropriate applications will be filed as the network is expanded. The transmission facilities required for the initial 18 city network include i2 leased terrestrial lines operating at 50 kilobits and 100 kilobits per second and a 1.544 Megabits per second multiaccess 'broadcast' communications satellite channel serving four earth stations, Los Angeles, Dallas, Chicago and New York. The use of satellite facilities is contingent upon the anticipated availability of suitable multi-point satellite service from one or more domestic satellite carriers.
-- Telenet Application for Authority under Sec. 214(a) to Institute and Operate a Public Packet Switched Data Communications Network in the United States, 46 FCC2d 680, File No. P-C-8750, Order (April 30, 1974)

Decision

6. On the basis of the information submitted by the applicant, we find that Telenet has substantially complied with the applicable provisions of Section 214 and part 63 of our Rules and has made the requisite showing of public interest to warrant our granting Telenet's application to authorize it to lease and operate the facilities set forth in the application for the establishment of a packet switched network. We conclude that the present and future public interest, convenience and necessity will be served by a grant of the Telenet application to that extent. However, for the reasons stated in our Packet and Graphnet decisions, we shall limit our authorization herein to the provision of terminal-computer and computer-computer communications by 'packet-switching' as proposed by the applicant in the application before us.
-- Telenet Application for Authority under Sec. 214(a) to Institute and Operate a Public Packet Switched Data Communications Network in the United States, 46 FCC2d 680, File No. P-C-8750, Order (April 30, 1974)
 

Graphnet Systems

1. The Commission has before it for consideration the above-captioned application filed by Graphnet Systems, Incorporated (Graphnet) pursuant to Section 214(a) of the Communications Act, and Section 63.01 of the Commission's Rules for authority to establish a nation wide computerized, packet switched store-and-forward facsimile communications system.The application was amended on June 22, 1973 to provide a more specific description of Phase I of its system which would be deployed within one year, while deployment of Phase II would be completed within three years after Commission approval. The application was amended again on December 10, 1973, in response to our letter of December 7, 1973, regarding additional information and clarification of Graphnet's proposed operation.
       2. Graphnet plans to obtain communication facilities from other common carriers to establish its nationwide computerized packet switched store-and-forward facsimile communication system between regional processing center sites at New York, New York and Chicago, Illinois and some 25 terminal cities specified in the application as Phase I, the initial cutover when the system commences operation; and to expand its network to include additional regional processing center sites at Los Angeles, and Dallas and some 25 additional terminal cities specified in the application as Phase II. Graphnet states that its system will offer a speed, reliability and flexibility of service not currently available to communication users.
       3. Graphnet states that the market for facsimile communications, both specialized and general business applications, expanded at a rate of approximately 20% per year during the period 1966 to 1971, and that it estimates that the market for business facsimile use should expand at a rate of 40% per year in the future.
. . . . . .
      5. Comments on the applications were submitted by Telecommunications Network, Inc. (TNI), MCI Carriers (MCI) and Data Transmission Company (Datran). In addition, The Western Union Telegraph Company (WU) filed a 'Petition to Deny'. TNI, MCI and Datran do not oppose a grant of Graphnet's application, as such, but raise certain questions with respect to the policies of the Commission concerning the entry of 'value added' carriers into competition with existing or new carriers. We considered and disposed of the substantive questions raised herein by TNI, MCI and Datran when we adopted our Memorandum Opinion, Order and Certificate of November 14, 1973 granting the application of Packet Communications, Inc. (PCI) to provide a common carrier digital data transmission service using the 'packet switching' technology (FCC 73-1168; 11/14/73). In that decision we stated, inter alia, that the entry of 'packet switching' carriers into the market for communication services would have an impact upon the structure of the industry but that such entry should be permitted because it would introduce new and improved means for satisfying the needs of the public not now available from any generalized or specialized carriers. We stated that it is our present intention to follow a liberal policy of 'open entry' in this area and that 'the findings and philosophy reflected in our Specialized Common Carrier decision in Docket 18920 are relevant and apposite here and support a competitive environment for the development and sales of the type of services proposed by PCI.' (Paragraph 17 of FCC 73- 1168). Our discussion in the PCI decision applies with equal force to the present application of Graphnet.
. . . . .
         9. On the basis of the information submitted in the application, we find that Graphnet has substantially complied with the applicable provisions of Section 214 and Part 63 of our Rules to the extent that it can be permitted to lease and operate the proposed facilities specified in the application for the establishment of its packet-switched network between various locations in the contiguous 48 United States and District of Columbia. We conclude that the present and future public interest, convenience and necessity will be served by a grant of Graphnet's application. For the reasons stated in our PCI decision, we shall limit our authorization herein to the provision of facsimile service as proposed by the applicant in the application now before us.
--In Re Application of GRAPHNET SYSTEMS, INC. For Authority Under Section 214(a) To Establish a Network of Leased Common Carrier Facilities Devoted Exclusively to the Specialized Areas of Facsimile Communications Between Various Locations in the Contiguous 48 United States and District of Columbia, File No. P-C-8586, Memorandum Opinion, Order And Certificate (January 14, 1974)