Image vs.
Reality (Essays in Frustration)
Cost Based Pricing
vs. Universal Service
September 1, 1987
The Editor
The New York Times
Your editorial, “More Phones, More Fairness,”
(8/30/87) is an interesting study in non sequiturs. While praising
cost-based pricing, you come out for “lifeline service” for poor
people, with installation and monthly charges obviously far below
their costs. You then justify this stand by stating as a fact
something that a hundred years of telephone innovation disproves:
that much of the gain from rapidly improving communications
technology will be lost without cost based pricing.
In castigating “cross subsidies” from long
distance to local calling, urban to rural service, etc., you deny
the whole basis of “Universal Service” which lifeline telephones
exemplify, and which produced the best, most innovative and lowest
cost telephone service in the world.
Although sophisticated regulators may be no
harder to find than a cure for AIDS, your suggestion that they exist
at the FCC is absurd. The FCC has purposely delayed the
implementation of cost based pricing of long distance service (and
the related monthly increase in the cost of local service paid by
the customer) for two reasons: it wants to maintain a profit window
as long as possible for the synthetic long distance competition it
created, while minimizing the uproar from all of us who would
suddenly have to pick up the total cross-subsidy in one giant step.
If you have looked at your home phone bill lately, you MUST know
that this INCREASE is vastly greater than the lifeline rates which
you praise.
As a final kicker, the FCC, as reported in
the Times, is about to abandon cost-based pricing for AT&T by simply
setting a ceiling on what can be charged for long distance service,
permitting AT&T to make all the money it can, independent of costs,
by exercising its skill in technical innovation. AT&T’s competitors
are very happy with this. Their hope seems to be that, if AT&T no
longer has to worry about cost-based pricing, it will use some of
its profits from long distance to subsidize its ailing computer
business instead of cutting LD rates to the minimum that cost based
pricing would have required. Such an action would, of course, be a
direct subsidy to long distance competition instead of the local
phone companies, and thus would preserve the American Dream.
Lifeline rates are a great idea, as was
Universal Service. Both are under attack by lawyers, economists and
other technological illiterates who use their appointive positions
to enforce their personal ideologies. I would hope that the Times
would give reality, to say nothing of logical consistency, some
editorial consideration instead of praising the wrong people for the
wrong actions. Cost-based pricing, if actually applied across the
board, would eliminate lifeline service and be the end of what is
left of Universal Service for rich and poor alike.
Very truly yours...
The experiences of half
a lifetime as a telephone engineer don’t impress lawyers,
economists, or newspaper editors. They are quite satisfied to live
in fantasyland.
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