US/ND-3: Re: Link to article by Peter Huber

Re: Link to article by Peter Huber

Bob Carlitz (bob@info-ren.pitt.edu)
Mon, 9 Sep 1996 15:26:57 -0400 (EDT) 

On Sun, 8 Sep 1996, Marty Tennant wrote:

> At
> 
> http://www.teledotcom.com/0996/features/tdc0996huber.html
> 
> you will find an interesting article with Peter Huber.
> 
> Keep reading and you will find some references to the 
> Universal Service issues we are discussing.
> 
> Marty Tennant

I read the interview with Peter Huber that Marty recommended to us
and have one major criticism to make of Huber's outlook.  Since it
deals with topics of specific relevance to schools and libraries
and of specific import for discussions about competition, I thought
it might be worth responding in detail.

The specific comment that I wanted to highlight is the following:
   
   "... the data traffic must pay traffic-sensitive costs.

               JB: Why? 

               PH: Because it's economic reality. We can get on our local
   phone line when we get up in the morning and nail up a circuit to our
   packet network, and we can leave it on indefinitely. We can leave it on
   for a year. We're tying up a circuit in the local office. Unless you
   believe in the tooth fairy, you know that is, in fact, not a free
   service." 

Huber is confusing two issues in the argument he is making.  His first
point (which was made in the remarks which precede this quote) is
a valid one concerning the so-called "local loop."  He argues that
the local loop is a fixed cost, whether you use it 24 hours a day or
not at all.  I agree with this point.

But next Huber argues that there should be added charges for "nail[ing]
up a circuit to our packet network."  He apparently assumes that the
traditional model of circuit-based telephony is the only way to configure
data services for homes, schools or businesses.  This ignores the
architecture of the Internet, which is a packet-based network, not a
circuit-based network.  

This way of viewing the world - and the enormous constraints it places
upon what we can do in that world - is not uncommon in different
sectors of the industry.  New technologies challenge the economic
base of many services and offer opportunities for services with
prices vastly different from those in the traditional marketplace.

The way in which the Telecom Act can accommodate these new activities
is through the competitive possibilities that it opens up.  The same
wire that Huber wants to slap time charges on whenever it's connected
into the telephone company's switching system could be connected
to a port on a router and from there to a fast packet network
maintained either by the telephone company or by some other group
that might be more aggressive in the introduction of new technologies.

I'm confident that, given the right competitive impetus, there will
be many players in this new market.  On our school networking efforts
in Pittsburgh we're using technologies which provide 1.5 megabit
connections to school sites with monthly charges of only $60. It
should be possible to have similar services in the commercial market. 

Today there is no incentive for this to take place, since there is no
competitive alternative in our region and certainly no willingness
to give up the revenues which accrue through circuit-based services
such as ISDN.  We use ISDN alongside of the newer technologies, and
it's striking to see the cost disparities that exist in this system.

Once there are cable companies offering high-bandwidth access to
data at prices that individuals, schools and libraries can afford,
it's likely that the telephone companies will respond with services
of equal or better quality and value.  This won't happen without
a competitive environment at the level of the local loop, whether
it's through multiple providers of that loop (such as telephone
companies and cable companies) or through the unbundling of that
loop (which would allow other companies to connect equipment at
the telephone company's central office or cable company's head end).

Bob Carlitz