** Another FCC disaster, SLCs & ISDN

Topics: Regulation
20 Mar 1995

From: "DG Ervan Darnell"

Recently, Bell Atlantic tried to lower, yes lower, their ISDN line rates
from about $40/month to about $20/month. The FCC would not allow it. The
FCC forced them to keep their prices high. The quote from the FCC at a news
conference was something like 'this is not in our plan'.

The more specific reason was that an ISDN line is two SLC's (Subscriber Line
Charge). A long time ago when the government first monopolized the phone
company, it said that people who really needed and used telephones had to
subsidize those people who did not need a phone line, or at least could not
use it in a cost effective manner. The mechanism for doing this was an SLC,
everyone paid the same for the basic line. So, easy to reach places like
the city had to subsidize hard to reach places like the country. Now, that
is just plain dumb on the face of it, even by their own standards of
providing phone service to everyone. It says that if your real cost for
phone service is $10, you must pay $20, so someone else whose real cost is
$30 only need to pay $20. This was supposed to *encourage* phone
installations. That it is economically inefficient goes without saying.

This demonstrates another a common problem with a government monopoly, it
represents capricious taxation. Even assuming that farmers needed
subsidized telephones why should other telephone users bear that burden?
There is no rational relation. Similarly, current indigent ER laws are
nothing but a sick tax that force the sick to subsidize the poor and sick.
Why should my needing an appendectomy cause me to owe more to the poor? The
post office is the same way. The argument goes that if we allow private
competition there will be "cherry picking" of the urban routes. Well, good
thing! Why should I have to subsidize the plane that flies to Barrow,
Alaska, just because I want to send a note to someone across town? If there
is really is some such entitlement as "universal communication" (which
liberals have conjured out of thin air), then it should be fairly,
uniformly, and honestly subsidized across the whole tax base. Let telephone
companies, delivery services, and hospitals deliver the most efficient
product they can. Even schools suffer from the same problem in the form of
"mainstreaming", i.e. putting mentally retarded kids in with average kids.
The advocates will tell you how wonderful it is for the retarded kids. It
may be, but that conspiciously fails to answer the question of how bad it is
for the average kids to be stuck where they are not learning as much as they
can, i.e. being forced to subsidize the education of the retarded because
they happen to be the same age or live in the same district.

Of course, the government was not content to leave things broken, there was
opportunity to make them worse. Tyranny of the majority set in by charging
business telephone users more in order to subsidize the larger voting bloc
of home telephone users. That mistake is being repeated with ISDN and the
cosequences will be worse this time
(http://www.hotwired.com/Signal/Bigger/). It will cripple an important new
infrastructure and enabling technology instead of merely adding some
frictional costs to existing businesses. First, the technological objection
the FCC is making is that an ISDN line is two lines and not one, therefore
it must pay a double SLC. It is true that an ISDN BRI line has double the
bandwidth of a normal 2-wire phone line (144 Kpbs/second instead of 64
Kbps/second), but it still uses the same two wires and the same system.
Even internally at the phone company, the same equipment is used because all
voice calls are digitized into a 64Kbps "B" channel as soon as possible and
thus ISDN and voice traffice look just the same internally. The SLC charge
was instituted to pay for maintaining the physical wires. So, the FCC's
position has no merit and is so much sophistry. Of course, its purpose is
to buy votes by handing out subsidies, not to actually do anything to help

Also ironic is that the government is pushing to get people out of their
cars to lower pollution, but any effort to work at home will be cut off at
the knees. Yes, I can spend another useless hour per day on the road and
add my share of pollutants to the air because I cannot afford to subsidize
some idle gossip in North Dakota. Companies are already responding by
offering bandwidth on less regulated cellular (and similar) frequenices for
intra-city and direct satellite services for longer distance. Even though
local wiring options could be more efficient those are largely illegal
(competition would make it hard to keep up the absurdist subsidy game [just
think about this: if I run a wire to your house that crosses any sort of
boundary, the government will be happy to show up with guns, if necessary,
and threaten mortal force for our daring to have a conversation in that
fashion!]). Again, if we must engage in the economic inefficiency of
subsidizing bandwidth, at least do it in the least painful way possible by
simply writing people a check, then let the market work to create the most
efficient services it can.

This is the same government that is going to develop the NII so we can all
benefit? I do not think so! For now, internet providers are pretty much
free to offer services on whatever terms they want. Use is exploding,
prices are dropping, services are improving, tools are becoming better.
Unfortunately, the day when I have to pay an extra $20 for Netscape to
subsidize refurbishing the terminals the street bums cracked in an L.A.
public library are not far off. Hopefully technology will outpace
regulation so we will have something really good before the government
throttles it.

The only thing the government should do is to make it illegal for states or
cities to regulate bandwidth providers. Let the phone companies sell
anything they want. Let people compete for phone service. Let the cable
companies sell anything they want. Let them offer broadcast, two way data,
voice, whatever. Let anyone with enough money to dig and resod buy all of
the ditches and pole space they want.