Re: Current issue of muckraker.

Rohit Khare (
Thu, 29 Feb 96 16:06:48 -0500

The details, while wildly overhyped, are true. In California, frinstance,
long distance providers pay 3 cents a minute to Pac Bell for the privilege of
sellng you ld access -- to the tune of $30B/yr

Why should that same charge be zero for AT&T to offer you ld data access? Esp
when they're encouraging users to blow apart RBOC infrastructure by massively
increasing circuit usage?


PS. Ernie, do you know Michael Klepman?


Bell Companies Assail AT&T's Internet Plan

Related article:
.Net Access Providers Worry About FCC Regulation.


)AN FRANCISCO -- A day after AT&T announced its ambitious new strategy to
offer millions of consumers low-cost access to the Internet, its archrivals,
the local Bell telephone companies, were crying foul.

As it turns out, AT&T plans to use a little-known loophole in the nation's
telephone accounting rules that will force the seven regional Bell companies
to provide Internet customers with free local connections to AT&T's network.

Unlike telephone voice calls, for which AT&T now pays the Bells billions of
dollars a year in "access charges" to connect local customers to AT&T's
long-distance network, computer connections made over those same local phone
lines are exempt from these access charges.

That exemption is the result of a ruling the Federal Communications
Commission made in 1983, when computer modems were still a novelty item and
the Internet was an arcane technology experiment used primarily by military
researchers and university scientists.

"The exemption from access charges was meant to be temporary exemption for
what was then a fledgling industry," said Dave Dorman, president and chief
executive of Pacific Bell, which provides local service in California and
Nevada. "The line-services market has now matured. With giants like AT&T
entering the market, it is no longer a fledgling industry, and the exemption
is no longer justified."

The local telephone companies attempted in 1987 and again in 1989 to have the
exemption lifted, but failed, in part because of significant consumer
resistance to paying higher rates for on-line and electronic data-base

But now that more than 11 million consumers use the local phone network to
connect to on-line services like America Online and Compuserve, and AT&T plans
in March to begin marketing Internet access to its nearly 20 million
customers who have computer modems, the Bell companies contend that they are
subsidizing their competitors in a business they themselves plan to enter.

AT&T drew industry attention on Tuesday when it introduced plans for its new
residential Internet service, which would be free for fewer than five hours of
on-line time a month and cost $19.95 a month for unlimited usage.

Underlying AT&T's new strategy is the company's vision of the Internet and
the World Wide Web as omnipresent information resources that will be instantly
available to its customers' fingertips without requiring a separate dial-up
modem connection for each use.

"We think that people will leave their telephone lines on all the time," said
Tom Evslin, vice president for AT&T's Worldnet service, as the company's
Internet business is called. "The Web is not useful to them when they have to
wait a minute for their modem to connect."

This new model of on-line all-the-time connections would allow customers to
be alerted immediately when E-mail arrives, for example, or when there are
news updates. In fact, some software companies, like Pointcast Inc., plan to
take advantage of such continuous Internet connections by providing software
that would turn screen savers for personal computers into the equivalent of a
newspaper that continually updates itself throughout the day.

But the load these open circuits will place on the local phone companies'
networks represents a cost that the Bell companies contend that they should
not be forced to bear.

Local telephone engineers say the modern telephone network was never designed
to handle millions of computer data sessions, which tend to be longer than
most voice telephone calls.

"AT&T is paying nothing for their usage," said Alan Ciamporcero, vice
president of FCC relations at Pacific Bell. "It's in their interest for the
connection to stay nailed up whether anyone is using it or not. That puts a
lot of pressure on our network. We're simply not engineered for that kind of

Nationwide, long-distance carriers paid local telephone companies about $30
billion in access charges to local voice networks in 1995, according to Daniel
Rheingold, a telecommunications industry analyst at Merrill Lynch in New
York. In California, for example, long-distance carriers pay Pacific Bell
about 3.1 cents a minute for connecting their customers to its local network.
Many other Bell companies, working with more generous state regulators, are
able to charge even more.

But when it is a computer modem on the line, rather than a human voice, the
local call is free.

"It's a really inappropriate use of the telephone network because the voice
users are being asked to subsidize data users," said Michael Kleeman, a
telecommunications industry expert at the Boston Consulting Group in San
Francisco. "I think the local phone companies will go to the FCC and request
the commission to eliminate the exemption. If that doesn't happen, it will
drive the local phone companies crazy."

But other analysts contend that in the face of rapidly changing technologies
and exploding consumer interest in the Internet, the local phone companies may
find it almost impossible to restructure the rate system in their favor.

"As these previously separate industries converge, the question is can you
find a way to use your assets to your advantage and exploit your competitors
weaknesses?" said James Moore, president of Geopartners, a consulting firm in
Cambridge, Mass.

Ultimately, the local telephone companies may need to look for a
technological edge that takes advantage of the fact they they -- not
long-distance companies like AT&T -- have a direct connection to each
customer's home. While AT&T's Internet customers can use a modem to place free
local calls to connect to AT&T's network computer, the transmission speed of
such connections is limited to 28,800 bits a second using today's fastest

But the Bell companies can offer much faster Internet connections through
special types of lines called ISDN or Integrated Services Digital Network,
which offer speeds of 128,000 bits a second. An even faster circuit, called a
T1 line, can transmit data at more than 1.5 million bits a second.

Already, some Bell customers around the country are willing to pay $30 or
more a month for ISDN connections, or several hundred dollars a month for T1
lines. But most Bell companies are not able to offer such connections to all

"We're progressively entering a data-intensive world and the local companies
have to re-engineer their networks," said Jerry Parrick, president of
enterprise network services for US West, the regional Bell company based in

Parrick, for one, sees AT&T's new Internet move as potentially beneficial to
his company in the long run. "The Internet is a very competitive market," he
said, "and if AT&T helps grow the market we're encouraging them to do so."