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49
Private Investment and Federal National Information Infrastructure Policy

Organization for the Protection and Advancement of Small Telephone Companies (OPASTCO)

Introduction and Statement of the Problem

The Organization for the Protection and Advancement of Small Telephone Companies (OPASTCO) is a national trade association representing nearly 450 small, independently owned and operated telephone systems serving primarily rural areas of the United States and Canada. OPASTCO membership includes both commercial and cooperative telephone companies, which range in size from fewer than 100 to 50,000 access lines and collectively serve nearly 2 million customers.

This white paper examines network deployment, specifically, the networks used to access information providers, the location of customers trying to access the information, and the problems associated with connecting to the information providers from rural areas. The information providers' databases are unique entities that are separate from the network providers and their networks used to access them and are beyond the scope of this paper.

Further, this paper suggests solutions to networking technology investment problems. The following five such problems, or barriers, typical to small, rural telephone companies are discussed in this paper:

1.

Limited local calling areas requiring toll access,

2.

Long loops with load coils and station carrier,

3.

Interconnection availability and distance,

4.

Limited but great needs, and

5.

High cost due to poor economies of scale.

Existing Network Deployment and Definitions

The information market consists of information providers, network providers, and customers. While OPASTCO and its members fall into the category of network providers, they may have some freedom that the regional Bell operating companies (RBOCs) do not because of Modified Final Judgment (MFJ) restrictions that apply only to GTE and the RBOCs. Information providers rarely provide their own network. Instead, they lease access from network providers that add a surcharge based on the number of minutes connected or packets transferred. In metropolitan areas, customers dial a local number or lease an inexpensive high-speed local direct connection to the local node for higher speed to information providers. In most rural areas, the customer is forced to dial a long-distance number and pay per-minute toll charges directly, or dial an 800 number and pay an hourly surcharge to the information provider. Having toll and 800 number access usually doubles or triples that cost of access depending on the minimum hourly or subscription cost that the information provider charges.

Today, data networks fall into three categories: private data, data packet, and high-speed open interface. The first type, private data, are networks that companies and government units build or lease. These networks may be privately owned and built or leased from local exchange carriers (LECs), interexchange carriers (IXCs), and data packet network providers, or any combination of the three. Private data networks can be truly separate



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Page 412 49 Private Investment and Federal National Information Infrastructure Policy Organization for the Protection and Advancement of Small Telephone Companies (OPASTCO) Introduction and Statement of the Problem The Organization for the Protection and Advancement of Small Telephone Companies (OPASTCO) is a national trade association representing nearly 450 small, independently owned and operated telephone systems serving primarily rural areas of the United States and Canada. OPASTCO membership includes both commercial and cooperative telephone companies, which range in size from fewer than 100 to 50,000 access lines and collectively serve nearly 2 million customers. This white paper examines network deployment, specifically, the networks used to access information providers, the location of customers trying to access the information, and the problems associated with connecting to the information providers from rural areas. The information providers' databases are unique entities that are separate from the network providers and their networks used to access them and are beyond the scope of this paper. Further, this paper suggests solutions to networking technology investment problems. The following five such problems, or barriers, typical to small, rural telephone companies are discussed in this paper: 1. Limited local calling areas requiring toll access, 2. Long loops with load coils and station carrier, 3. Interconnection availability and distance, 4. Limited but great needs, and 5. High cost due to poor economies of scale. Existing Network Deployment and Definitions The information market consists of information providers, network providers, and customers. While OPASTCO and its members fall into the category of network providers, they may have some freedom that the regional Bell operating companies (RBOCs) do not because of Modified Final Judgment (MFJ) restrictions that apply only to GTE and the RBOCs. Information providers rarely provide their own network. Instead, they lease access from network providers that add a surcharge based on the number of minutes connected or packets transferred. In metropolitan areas, customers dial a local number or lease an inexpensive high-speed local direct connection to the local node for higher speed to information providers. In most rural areas, the customer is forced to dial a long-distance number and pay per-minute toll charges directly, or dial an 800 number and pay an hourly surcharge to the information provider. Having toll and 800 number access usually doubles or triples that cost of access depending on the minimum hourly or subscription cost that the information provider charges. Today, data networks fall into three categories: private data, data packet, and high-speed open interface. The first type, private data, are networks that companies and government units build or lease. These networks may be privately owned and built or leased from local exchange carriers (LECs), interexchange carriers (IXCs), and data packet network providers, or any combination of the three. Private data networks can be truly separate

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Page 413 networks or virtual private networks sharing equipment, but they cannot be truly interconnected except through an optional gateway node. These networks are relatively expensive, with high start-up costs. However, such networks exist, and if the company or government unit can justify the need, there are few technical problems or problems obtaining return on investment by small telephone companies in providing this type of network. The second type of networks are first generation, usually x.25, special data packet networks. Tymnet and Telenet are examples of special data packet network providers. These networks are provided by IXCs, large regional LECs, and special data packet network providers. The high cost of the initial investment, limited speed and capabilities, and limited willingness to interconnect small nodes to the existing networks have limited the existing participation in providing data packet network access by small, rural telephone companies. High-speed open interface is the third type of networks. Router and ATM switched networks, as well as the Internet, are examples of high-speed open interface networks. The Internet is an interconnection of numerous networks supported by regional, nationwide, and worldwide networks that provide access to a host of information sources, as well as electronic mail to anyone connected to the "net." However, the Internet in its existing configuration and capability is not the complete functional network that is needed to provide the full range of services desired by information providers, private industry, universities, and other small business and residential information users. Analysis of Problems and Alternative Solutions Barrier 1: Limited Local Calling Areas Requiring Toll Access The key to affordable information access for residential and small business customers is local access to the networks that provide access to the information providers. Unfortunately, few rural communities have network nodes. Only those small exchanges close enough to metropolitan areas to have extended area service can access the network providers with a local or toll-free call. Many special data packet network providers place nodes in calling areas that have a population of at least 100,000, but some require areas to have a population of at least 250,000. Special data packet providers are telecommunications providers that use local networks to connect customers with various information providers for a profit. Normally, they order standard business lines from the LEC and install banks of modems concentrated with packet assemblers and share the backbone transmission link between metropolitan nodes. IXCs are required to pay the LEC for originating and terminating access on a flat rate per trunk or on a per-minute-of-use basis. The packet data network providers currently are exempted from paying access revenues to the LEC. One factor to consider when planning to provide local data access from a small telephone company is the lost toll revenue from current subscribers to information service providers. In addition, if local access is provided and the volume of local calling increases significantly because of the highly elastic nature of information services, there will be an increased investment in equipment and a decrease in revenue. For small telephone companies that have cost-based toll settlements through the National Exchange Carrier Association, the impact of the loss in direct toll revenue and the jump in local calling dramatically shifts the revenue requirement from the toll to local, which forces local rates to increase. Average schedule companies experience the loss in toll revenue but are not aware of the negative double shift in revenue impacts of increased local usage. Any national policy to foster investment in infrastructure should assess the impacts to both cost and average schedule companies. Integrated services digital network (ISDN) has not been deployed to any extent in rural markets because the switching systems commonly used by small telephone companies do not have ISDN available yet or they have just recently made it available, or the cost to add ISDN services is too high for the limited rural market. Even overlay networks that allow a small initial investment to provide small quantities of ISDN service are high in cost when considered on a per-line basis. As the ISDN market penetration increases throughout the country, increased pressure to provide ISDN in the rural markets will occur. Unfortunately, ISDN services are basically local services, and unless the network provider has a local ISDN node, the high cost of ISDN toll access remains a barrier. Fortunately, in the last year, 28,800-baud modems with error correction and compression have improved voice-grade lines' data access speeds considerably.

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Page 414 The only technical solution to the local access barrier that exists today is to provide local access. The following is an examination of the barriers that should be reduced to make local access more feasible. Barrier 2: Long Loops with Load Coils and Station Carrier Both load coils and analog carrier limit data capability to voice grade circuits. The maximum bandwidth of all voice grade lines is 4,000 Hz, which may limit data transmission to 7,200 baud or less. Analog carrier in addition to bandwidth limitations also has limited custom local area signaling service (CLASS) capability and for 5 years has been in an industry-wide phaseout. Only within the last 2 years has there been any trend toward eliminating loaded loops. According to the USDA-REA 1992 Telephone Loop Study, the average loop length was 4.11 miles, and 17.84 percent were greater than 6.1 miles. In 1969, the average loop length was 3.3 miles, and about 20 percent of the loops were greater than 6.1 miles; at the same time, less than 2 percent of the Bell companies' loops were greater than 6.1 miles, and they averaged only 2.16 miles. When there was an effort to reduce loaded loops, the increase in average loop length was probably due to a conversion from multiparty lines to all one-party service. The USDA-REA study also showed that in 1992 38 percent of the REA loops studied used load coils to enhance voice transmission, which was down only 1 percent from 39 percent in 1985. Fortunately, in 1992, only 2.1 percent of the loops studied were served via analog station carrier. Long rural loops with load coils and analog station carrier limit dial-up access only slightly, but they do not allow for ISDN or higher data speeds. If only one or a few lines of high-speed data are required, then special data circuits can be built, but only at high per-circuit cost. If ubiquitous service is required, an entire system redesign may be required. For the last 10 years, there has been a trend to minimize loaded loops, but only within the last 2 years have rural, independent telephone companies considered totally eliminating loaded loops with remotes or digital serving areas and loops limited from 12,000 to 18,000 feet. Until now, these designs have been implemented to reinforce for high growth or to transition fiber in the loop to replace deteriorated air core cables. If ubiquitous high-speed data service is the objective, then considerable investment in digital serving area facilities will be required. An evolving definition of universal service and a continuation of the Universal Service Fund (USF) for high-cost areas will be necessary to foster the added investment in the infrastructure. Barrier 3: Interconnection Availability and Distance One factor in availability is the distance from rural exchanges to the nearest network providers. Network providers have established access nodes in most metropolitan areas with a population of 100,000. The distance from these access nodes to rural exchanges can vary from 20 to 500 or more miles. The cost for transport of 56 kbps and T-1 or higher speed data circuits is distance dependent. If multiple incompatible or proprietary network connections are required, then the already high cost for transport multiplies. Another factor in availability is finding a willing network access provider to connect to an independent telephone company network. To date, only regional Internet providers have been willing to provide direct independent data network connections. One solution to the lack of available network connections would be a single standardized network enabling a common transport link, as well as lower costs to build in the desired redundancy. Another solution would be to establish regional hub nodes that would decrease the distance of transport, thus allowing a number of companies to share the cost of common transport to the metro nodes. One example of a regional hub network has been implemented by Minnesota Equal Access Network Services (MEANS) and Iowa Network Systems (INS). Together the companies have built statewide networks to share in the cost of nodes and transport.

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Page 415 Barrier 4: Limited But Great Needs While there may not be a great demand in rural areas for communications in terms of numbers and volume, there is a great demand for communications, and data communications in particular, due to the travel distances and the need to be competitive with urban areas. Rural areas strive to expand employment and increase economic development, and providing up-to-date communications is imperative for high-technology jobs and is needed to attract business to rural areas. There is no solution to the problem of travel distances and the need for communications in rural areas beyond providing for the basic communications needs of rural customers. Barrier 5: High Cost Due to Poor Economies of Scale The average OPASTCO member company serves approximately 6,000 customers, and the average exchange or wire center has approximately 1,200 access lines; compare that to a population of 100,000 or even 250,000, which is necessary for some data packet network providers to invest in a node. The high minimum cost of investment coupled with comparatively few customers and a low volume of data traffic make the cost per customer or volume of traffic much higher than in urban areas. In addition to the high cost of investment in equipment and transport, an even higher cost may be required for test equipment, training for maintenance staff, and training and staffing for customer support. In addition to the training of support staff, an additional cost or barrier to marketing data network technology in rural areas is educating customers to the benefits and general use of computers. One partial solution would be standardized modular node equipment manufactured in volumes large enough to reduce the cost per node. Again, if single network and regional hubs were implemented, the costs per customer could be reduced. Shared networks and even a shared pool of test equipment and support personnel could further reduce costs. Continued application of dial equipment minutes (DEM) weighting and further application to data networking equipment are existing mechanisms for recovering the cost of investment and keeping the costs to rural customers at an affordable level. Recommendations and Summary Standards development, standard equipment, regional hubs, and a single common data network are partial solutions to the problems of providing affordable data network access to rural areas. Further, an evolving definition of universal service and the continued or expanded application of the USF coupled with continued or expanded DEM weighting are necessary to provide affordable information services to rural America.