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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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