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Competing for the Second Line
Mar 10, 1997 :: Michael Sippey

A couple of weeks ago I finally got around to installing the second phone line I've desperately needed for so long. But not without a struggle.

I called Pacific Bell a few weeks ago to put in a service request. I asked them to provide dialtone only to the gray plastic box on the side of the house: I figured I was handy enough to string telephone wire up into my second bedroom. They promised me a date on which the line would be live, I thanked them profusely.

When that date came, the box on the side of the house hadn't been touched: no dialtone whatsoever. So I called PacBell, told them about the problem, and they tested the line while I was on hold. From their end, the line looked fine -- dialtone a go-go. But since I wasn't hearing anything, they scheduled a service technician to come out and test things on this end. He came on a Saturday morning and spent an hour fiddling with the box and climbing the pole across the street. By the time he left, I had had dialtone -- 28.8k worth of bandwidth waiting to be strung along the side of the house. And it's very, very cheap.

I'm paying around $14.00 per month for this second line. It's a no brainer for me -- no busy signals for folks calling in, and I can connect to my flat rate ISP for hours on end. But for PacBell, having spent around 45 minutes on the phone with me, and having dispatched an expensive service technician for an hour, they're losing money on this phone line.

Last week, here in California, FCC Chairman Reed Hundt announced that he doesn't think that local phone companies should be able to charge network access fees to Internet service providers. Hundt rightly understands that ISPs, operating on razor-thin margins as it is, would only pass on those costs to the consumer, thus stifling the growth rate of households connecting to the Internet.

But Hundt realizes that the phone companies are subsidizing the growth of the Internet and online services in ways that aren't directly related to network access fees: second phone lines. "The Internet shouldn't be subsidized in the form of below-cost second lines," said Hundt last week at the ACM97 Conference in San Jose. "If someone wants to buy a second line to access the Internet, the phone company should be entitled to charge them what that line costs."

Basic telephone service rates are regulated under the guidelines of providing "universal access:" the government has had a long-standing interest in making sure that every household in America can afford to have a telephone. Universal access rates apply to any residential phone line, even if that line is a luxury item that doesn't even connect to a telephone. With one-sixth of American households having more than one phone number, the second (or third, or fourth) phone line will become the battleground for telecommunications companies, and not just ones selling wired connectivity.

Here in the Bay Area, AT&T has begun advertising themselves as an alternate provider of local phone service, competing with PacBell. Meanwhile, PacBell wants to get into the long distance business, and compete with AT&T. It happens that I'm a customer of both AT&T and PacBell, and expect to be hit with a marketing onslaught in the next year or so. Imagine the bundling possibilities: AT&T or PacBell could pitch me with "buy your local phone service, your long distance and your Internet access from us, and we'll throw in your second line for free."

But what about the non-dialtone folks? The ones that we've been promised for so long? The cable modems and the wireless loops? Shouldn't they be fighting the good fight for my access dollar as well? Unfortunately, the $14 a month I'm paying now for dedicated 28.8k access to the Internet is a price point that the new service providers are going to have to contend with. How much more than $14 per month will I be willing to pay? How fast can they deliver data to my desktop? According to Chairman Hundt, "both wireless and cable have the potential to break the bottleneck of local exchange carriers in providing high-bandwidth data connectivity to the home. Unfortunately, rate regulation provides disincentives for companies interested in deploying such a service."

It seems to me like there's a chicken and egg thing going on. The FCC isn't interested in fully deregulating the local access market until there's competition in providing alternative telecommunications services, whether it's over a cable or through the airwaves. And the new access providers have to compete at a price point (around $20 per month) that makes it difficult to generate enough cash flow to invest in enough research and development to keep ahead of the competition -- firms with names like Pacific Bell, USWest, MCI, AT&T...

In the meantime, the firms trying to make a living on Internet content will suffer. Many content providers have assumed that "the bandwidth will come," and have leveraged their business on being able to provide more immersive, interactive experiences at some point in the future. The challenge for those folks will be scaling back their business models to something that revolves around ASCII and animated GIFs...



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