Re: Incumbent carrier access pricing policies [cr-95/10/7]


Sender: •••@••.••• (Allan Bradley)

>>Date:    Wed, 27 Sep 95 09:40 EDT
>> >From:    "Rob Frieden" <•••@••.•••>
>> >Subject: Incumbent carrier access pricing policies
>> >To:      •••@••.•••
>> >Recently the issue of efficient component pricing was raised.  I'm
>> >hoping one of more members of the list can provide some broader
>> >insights on what constitutes "fair" and "cost-based" access
>> >pricing, particularly when the incumbent carrier provides the
>> >underlying transport services for both affiliated and unaffiliated
>> >enterprises who provide both basic and enhanced services.

The Telecomm Bill and the issue of universal access is an issue that I have
been grappling with for the last few years.  I have somewhat of a different
perspective on all this.  First the problem with the Telecom Bill as far as
the "definition" of equal transport access is concerned is that the
reference model is antiquated from my point of view.  Furthermore, the
models of distribution (I cannot speak for all states) and rate payer
formulas on the state commission levels are at least 30 to 40 years old and
are at best based on  two dimensional  phone connectivity technology.  To
understand what the next market or value will in the "Telecomm" industry,
you now have to look at the technology.

First,  I breakdown the new "Telecomm" market into three (3) categories:
1. Technology (applications, hardware/software, etc - of all sorts) 2.
Bandwidth (the size of the pipes to support the Technology) and 3.
Distribution (the layout allocation of the pipes, e.g., fiber, satellite,
cable, etc.).

I think we also need to bear in mind this issue is not just exclusive to
the phone companies - It also includes cable, media, broadcast and
organizations dealing with mass communications.

ATM (Asynchronous Transfer Mode) Network Technology

ATM takes data information (voice, video and data) and chops it up into
small chunks which are called "cells".  These cells are essentially
segmented in the hardware of LAN/WAN Switch Hubs into "virtual circuits".
Within these hubs are virtual engines (in hardware) which forward the cells
from their source to their destination.  The problem is that massive
amounts of virtual circuits can be immense.  For example, lets say you need
to connect 200 buildings - that turns into a 200 by 200 possible switch
matrix which means 40,000 potential switched circuits.

Although the switching is transparent to the user and the virtual circuits
are basically self defining, the issue of really controlling the switching
fabric is paramount.  A switching fabric (hardware based) is called
connection oriented because a virtual end-to-end circuit has been
established (required for voice, video and data streams) and is load
independent (more users performance integrity remains the same).  The
Internet is based on connectionless data or datagram schemes.  The main
difference is that the Internet is software based (TCP/IP)  and therefore
highly programmable - the drawback is that it is slow and unpredictable
(jerky video) and load dependent (more users worse performance) - the
advantage is that it self allocating and managing based on user addresses
not circuits.

Enter the standards bodies (ATM Forum) basically made up of network
hardware, software vendors and phone companies.  Best of all worlds is to
combine the connection data streaming performance with the managing
software of connectionless control.  The definition of what are called
Adaptation Layers were established.  There is still huge debates on what
these Adaptation Layers will really provide and to what level they will be
a true industry open standard.

For last few years there has been a big battle on the standards committees
on how to price switched circuits.  The phone companies wanted a header to
be put on the cell so that Bandwidth on Demand services could be defined
(essentially the more bandwidth you use the more you pay) the network
vendors did not want a cell header because it would slow performance and
create more switching overhead.  I believe now there will be to two
categories of switched connectivity and will be allocated on a platform by
platform basis.   Which is fine because both are needed for different

The real difference is that as a communications company (based on the phone
model) I could run a line and price it as a dedicated path (pipe) with only
an associated bandwidth payload which is the way it is today.  With new
technologies I can take that same path and create multiple aggregate
payloads and the physical rate structure is the same.

What does this mean.  Well for example, let's take two different public sites: a
residential community and  a business park.   And for the sake of universal
access both have been wired with the same amount of fiber, copper, etc. to
support high-end communications.  Both from a phone company perspective
have cost exactly the same amount as far as distribution.  But the
technology given the business park will require a thousand times more
bandwidth than that of the residential community.  Where do you think the
profit margin and the emphasis is going to be.

The Telecom Bill transport fairness rules are based on old vertical market
allocation, when the real money will be in horizontal market bandwidth
distribution.  That is the monopoly danger.  That is why I harp on defining
the models.  If you have the money for the technology, you have the huge
advantage in the market.

My concern is that schools, public services, city communities may get the
short end of the stick, because it is a distribution bandwidth market and
they need cheap bandwidth and that could lower market margins.  The
investment in these technologies today is very high.  The problem is that
regulations need to include bandwidth distribution and not  exclusively
physical distribution as the basis of universal - access (distribution).

Allan Bradley

ConsulMetrix, Inc.
Setting the Standards in Technology Consulting

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