Return-Path: Received: by massis.lcs.mit.edu (8.7.4/NSCS-1.0S) id UAA01242; Mon, 24 Nov 1997 20:33:04 -0500 (EST) Date: Mon, 24 Nov 1997 20:33:04 -0500 (EST) From: editor@telecom-digest.org Message-Id: <199711250133.UAA01242@massis.lcs.mit.edu> To: ptownson Subject: TELECOM Digest V17 #328 TELECOM Digest Mon, 24 Nov 97 20:33:00 EST Volume 17 : Issue 328 Inside This Issue: Editor: Patrick A. Townson Re: The Internet Will Swallow the Phone (Tim Gorman) Re: The Internet Will Swallow the Phone System (Richard Shockey) Re: The Internet Will Swallow the Phone System (Jay R. Ashworth) Re: The Internet Will Swallow the Phone System (Henry Baker) Re: Monopolies and Microeconomics (Lee Winson) Re: "Spambone" Spam Backbone Press Release From Sanford Wallace (H. Anvin) Re: "Spambone" Spam Backbone Press Release From Sanford Wallace (Ashworth) TELECOM Digest is an electronic journal devoted mostly but not exclusively to telecommunications topics. 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Any organizations listed are for identification purposes only and messages should not be considered any official expression by the organization. ---------------------------------------------------------------------- From: Tim Gorman Subject: Re: The Internet Will Swallow the Phone Date: Mon, 24 Nov 1997 15:11:49 -0600 In Telecom Digest #327, John Levine wrote: >> The difference between the Bell System and a government agency is >> total. The Postal Service is a government operation by law. It is >> supported by and its losses are guaranteed by the taxpayers of this >> country. The Bell System was not supported by the government and its >> losses were not guaranteed by the taxpayers of this country but by the >> shareholders of the stock. > Gee, Tim, a Bell guy like you should know his history better than that. > Dating back to the dawn of telco regulation before 1920, regulators > set phone rates in cooperation with telcos to set a rate of return on > invested capital. If the actual rate of return was lower than it was > supposed to be, the telco could go back and get a rate increase. If > the return were too high the regulators could (and sometimes did) > force a rate decrease. Bell (Vail, really) invented this scheme, but > it applied to independents the same way it applied to AT&T and its > subsidiaries and affiliates. > This worked in practice exactly like it was supposed to -- it > guaranteed telephone company profits. That's why AT&T paid its full > $8/share dividend every year throughout the depression and WW II, > probably the only company in the country not to cut or eliminate > dividends. John, the phone companies were NOT guaranteed profits. Look at what you just stated above: "If the actual rate of return was lower than it was supposed to be". There were a number of years when telephone companies did not earn very well. In fact, there have been years when some smaller telephone companies in the rural areas around here made no money at all. The reason AT&T always paid its dividend was the highly conservative manner it which it was managed, not because it was guaranteed profits. Rates were always set based on past earnings. If those past earnings had been negative, there would have been no going back retroactively to "guarantee profits". And as I remember, there were several large companies which continued their dividends, some of the railroads being among them as well as some of the oil companies. > In recent years regulation has changed in many areas from rate of > return to price caps, but for upwards of 50 years, the phone system > was built using government guaranteed rates of return on investment. > That's why telephone bonds paid interest close to that of government > bonds, there was close to no risk on them. LEC bonds still get great > interest rates, since investors believe (correctly so far) that the > change from ROR to price caps was hugely in the telcos' favor since it > removed the need to decrease prices when costs drop. You still confuse conservative management with "no risk". There were no guaranteed rates of return since going forward rates were based on past performance. For your "guaranteed profit" scenario to be at all viable, the regulators would have had to have working crystal balls with which to forecast future downturns in the economy. Trust me, they didn't exist. Nor were rates ever hiked retroactively in order to guarantee profits. Exclusive franchises with conservative management is why the bond ratings have always been so high. That still doesn't combine to make telephone rates into "implicit taxes". In Telecom Digest #327, Adam Kerman (ahk@chinet.chinet.com) wrote: > In practice, they can exercise governmental functions like eminent > domain. But, from an economic standpoint, it is unimportant if the > infrastructure is owned directly by the taxpayers or a public > corporation. From an economic standpoint it is VERY important if the infrastructure is owned directly by the taxpayers or by a public corporation. It has a significant impact on the expectations of the investors - which, of course, taxpayer owned infrastructures do NOT have! How many highways do you suppose the taxpayers expect to return *anything* on the investment used to build the road? > The issue is the monopoly. A monopoly is a privilege granted by > government to one person at the expense of another. This privileged > person is protected from the non-privileged. It isn't a right he > earned. This lead-in is the tip-off to your whole position. You are not really interested at all in the true picture of the phone system as it was or is today. It is obvious that you are ignoring what the traditional, historic view of a natural monopoly was or how it was operated. For your information, it was estimated in the 60's and 70's that more widows and elderly owned AT&T stock than anyone. Is this your view of who the *privileged* were that were profiting from the expense of the non-privileged? > What's wrong with unearned privilege? The costs and benefits are not > fairly distributed, which influences the economic decisions that > consumers make. And, the incompetent are protected from going out of > business. The problem here is that you haven't *shown* who the privileged and non-privileged you are speaking of were or are today. You segue between speaking of a monopoly, which has to do with the number of competitors, to speaking of the privileged and non-privileged, which I assume has to do with the class conflict between the rich and poor, to the economic choices of consumers, which has to do with the supply/price/demand relationships. You blur them altogether as if they are the same. Are there privileged/non-privileged consumers? If not, then what does this have to do with the costs and benefits which drive economic choices? If there are, then what do privileged/non- privileged consumers have to do with earned/unearned monopolies? Based on this, is the real problem the monopoly or the class warfare between rich and poor? Basically, it just looks to me like you are throwing out emotional pleas that you hope someone will buy. > Utility subscribers don't have a choice. Really? Since when? I have a septic system where I live. I don't pay the city sewer utility a dime. I have two people working for me that have private wells. They don't pay the city water utility a dime. I personally know one family that does not have a phone. They use the pay-phone at the corner. If you need to talk to them you go in person or send a letter. They don't pay the telephone utility a penny for a private phone. This would appear to be just one more emotional argument that has no basis in fact. > The effect on the ratepayers is the same. Since your first premise is misguided, your conclusion is also. > He has no other choice when it comes to mailing a First-Class > letter. He must send it with the government-owned entity. If he wants to *communicate*, he has several choices other than a first-class letter. That is the issue. > He has no other choice (usually) from whom he rents his local > loop. He must use the incumbant Local Exchange Carrier. Even when a > competitive LEC exists, more often than not it is only a reseller, not > facilities-based. So what does this have to do with privileged/non-privileged? What does this have to do with earned/unearned? What does this have to do with the 17 mile loop to the middle of a 35,000 acre ranch? How many facility-based providers are going to buy private right-of-way to put local loops into this rancher? > It is irrelevant whether the government reserves the privilege to > itself, as in the Postal Express laws, or grants it to another. The > economic effect is the same. (All right, I won't speculate if > technology wouldn't be in the state it is in today if government had > reserved the privilege of provisioning telephone service to itself.) Now you are back to making unsupported claims again. What economic effect are you addressing? That there will only be one facility-based provider or that the facility will be priced at something other than just over the incremental cost of providing the loop? >> The difference between the Bell System and a government agency is >> total. The Postal Service is a government operation by law. It is >> supported by and its losses are guaranteed by the taxpayers of this >> country. The Bell System was not supported by the government and its >> losses were not guaranteed by the taxpayers of this country but by the >> shareholders of the stock. > Actually, they function alike. The USPS is supported by fees (for the > most part), not taxes. Its losses are distributed among the fees paid > by mailers in the various classes of mail, which are defined by > law. Losses in a telephone company are not distributed among the fees paid by the subscribers. That is why the telephone companies in the past were called *regulated* monopolies. The regulators set the prices based on a fair price to the user and a fair rate of return to the investor. If the company lost money due to bad investments, it wasn't made up through increased prices to the subscriber but through losses to the investors. > Furthermore, as a government entity, the USPS is exempt from most > taxes and fees that ordinary business pay. Thus this is another difference between the telephone companies and the USPS. The telcos do pay taxes and fees just as a private company does. > In addition, there are certain subclasses of mailers (nonprofit and > certain political organizations, veterans groups, fraternal > organizations, labor unions, Underwriters Laboratories, certain > agricultural organizations) whose reduced mailing fees used to be > subsidized directly out of general tax revenues, but are now > subsidized by higher fees charged to regular mailers in the > Periodicals and Standard Mail classes. Is this part of your privileged versus non-privileged argument? Or is this really just a phenomenon seen time and again in private business, i.e. charge what you can get? > And, within Periodicals and Standard Mail (B), there are subclasses > with special fees based on the contents and not the marginal cost to > the Postal Service. It costs more to deliver and transport mail (some > argue) to rural areas, yet they pay the same rates as those who live > in cities. Really? You think that rural telephone subscribers pay the same rates as those who live in cities? Perhaps you could contrast the rates paid by subscribers in Mound City, Kansas with the rates paid by subscribers in downtown Memphis? Or in Jackson Hole, WY with those in downtown Miami, FL? > With the case of the Bell System, certain classes of ratepayers > benefitted from cross-subsidies paid by other classes of ratepayers. Are rural customers who are subsidized the privileged ones you speak of above? Are the residential customers being subsidized by business customers the privileged ones? > Of course, telephone companies pay ordinary fees and taxes like > other businesses. So they aren't like the USPS. > Oh, and the Bell System's losses aren't guaranteed by the taxpayers? > Can you say "Conrail"? Ummmm, Conrail and AT&T don't seem to be the same letter combination. Is Chrysler a taxpayer supported business? Can you say "PUC directed sale of property"? > The point is, what with cross subsidies, the costs and benefits are not > distributed fairly. And how does that make the subscriber fees into "implicit" taxes? How does it relate to the privileged/non-privileged argument you made above? >> This is where your comparisons really start to break down. Income is >> NOT equal to capital. Subscriber dollars are INCOME, not capital. >> Income is used to pay debt, pay dividends, and pay expenses. Some >> income may be converted to capital as reinvested earnings but this is >> a management decision and is not taken lightly. This money usually is >> better off being paid out as dividends to attract more capital than >> being used as capital itself. As far as I know in the Bell System, it >> was NEVER the case that there were ever sufficient earnings to fully >> finance the capital needs with reinvested earnings. This means that >> additional investors had to be continually attracted to the >> company. These investors OWNED the companies and not the government. > But, if the government had not guaranteed a steady, predictable, and > growing base of ratepayers, who would have invested? Generally, except > in situations with incredibly poor planning or fraud, the purchase of > utility securities is relatively low risk. And now you are off into yet another argument. How does an exclusive franchise relate to the privileged versus non-privileged? You seem to be somewhat unfamilar with the history of the telephone industry in this country. Did you somehow think that the industry did not take off until the government established the practice of exclusive franchises? LOTS of people invested in the telephone company startups in this country. Lots of people invest in them today even with competition growing every day. > Society, as a whole, absorbed part of the risk. Again, no difference. Society absorbed no risk, the investors did. Should a phone company fail, the PUCs would have merely directed the sale of their assets to a different operating company, probably through the bid process. It's happened before, it will happen again. ------------------------------ From: rshockey@ix.netcom.com (Richard Shockey) Subject: Re: The Internet Will Swallow the Phone System Date: Mon, 24 Nov 1997 22:39:53 GMT Organization: Netcom billsohl@planet.net (Bill Sohl) wrote: >> [TELECOM Digest Editor's Note: My thoughts on reading the original >> article was that the author was saying Internet would eventually >> absorb most or all of the long distance side of the telecom business. >> That is, after all, the most profitable part of it. Yes, there would >> still be the local loops, but companies like AT&T -- to name just an >> example -- would suffer financially quite a bit after the Internet as >> a voice carrier comes into wide use. PAT] > The problem today and for the forseable future is that internet phone > is not reliable. As a business user, I can not afford the hit or miss > aspect of internet phone when dealing with clients. I suspect I-phone > will augment recreational/family voice services, but I see little > liklihood that it will kill AT&T, MCI, etc. Some thoughts to consider in this thread. The PSTN long distance is not going to go away, but the capability of skimming off large portions of it are available now. It is not residential customers who are doing it, its business customers. Approximately 40% of Fortune 500 LD calls are within the enterprise, calling one branch or division of a company to another. Companies are spending millions building out their IP networks so it makes sense to optimize the deployment of their internal networks by moving INTERNAL voice and fax traffic across those nets. You can buy products NOW from VocalTec, Lucent, Cisco and others that are IP Telephony gateways that sit behind the PBX and route the calls from your NYC office to your Berlin office over IP, etc. Its transparent. To your switch its just another phone extension. You have one "on ramp gateway" in NYC and a "off ramp gateway" in Berlin. The standards are nearly in place. All you need to do is run the cost-benefit analysis to see if these products meet your needs. In addition, there is a strong move in both the IETF and ITU to create standards for Internet Fax. Fax is perfect for the Internet. It can accept latency, it is unidirectional (push if you wan to call it that), and most of the technology SMTP,MIME,UTP/RTP and H.323 is in place to deploy. At the most basic level you can MIME attach a TIF file to anyname@domain.com and you are done. E-Mail programs will have TIF viewers imbedded in the programs in the future. Panasonic has shipped the first Internet Aware fax machine the FO-770i machine that can send a fax as email. Yes, it has a keyboard! Every other Japanese fax machine vendor is developing products with similar capabilities. Move just 5% of global fax traffic off the PSTN and you have caused major profit headaches for the LD carriers. BTW according to IDC/Davidson Consulting ... we move one billion fax pages a day. Even ATT estimates that 30 % of the calls across the Pacific are fax. This is the real threat to PSTN-LD company profitability. Richard Shockey 8045 Big Bend Blvd. Suite 110 St. Louis, MO 63119 Voice 314.918.9020 FAX 314.918.9015 Internet rshockey@ix.netcom.com ------------------------------ From: jra@scfn.thpl.lib.fl.us (Jay R. Ashworth) Subject: Re: The Internet Will Swallow the Phone System Date: 25 Nov 1997 00:40:43 GMT Organization: Ashworth & Associates On Sun, 23 Nov 1997 15:25:02 GMT, Henry Baker wrote: > Perhaps one of the best results of 'internet telephony' will be the > end-to-end negotiation of vocoders so that quality can be maximized and > latency minimized, by putting in a single translation to the lowest bit > rate, with one translation back to voice. Indeed. It's interesting to note, in this context, that the Telos Zephyr broadcast ISDN codec can negotiate with other units of it's type to choose the best possible encoding and data rate for a given call, in exactly this manner, connecting as it does via an ISDN BRI. Cheers, Jay R. Ashworth jra@baylink.com Member of the Technical Staff Unsolicited Commercial Emailers Sued The Suncoast Freenet "Two words: Darth Doogie." -- Jason Colby, Tampa Bay, Florida on alt.fan.heinlein +1 813 790 7592 ------------------------------ From: hbaker@netcom.com (Henry Baker) Subject: Re: The Internet Will Swallow the Phone System Date: Mon, 24 Nov 1997 14:09:17 GMT In article , Tim Gorman wrote: >> Yes they were. And while the funds to build the system were not explicitly >> tax dollars, it could be argued that they were selectively applied implicit >> tax dollars. The Federal Government decided that the Bell System (and other >> LECs) would be a monopoly and we had no choice about who received our >> telephone dollars. The government-protected LEC always got your money. > It could be argued that the subscribers money was implicit tax dollars > but the argument is certainly not convincing. Government regulated > common carrier monopolies are not government entities either in law or > in practice. If it walks like a tax, and talks like a tax, it _is_ a tax. E.g., the 'universal service' tax in the 1996 law. > The difference between the Bell System and a government agency is > total. The Postal Service is a government operation by law. It is > supported by and its losses are guaranteed by the taxpayers of this ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ > country. The Bell System was not supported by the government and its > losses were not guaranteed by the taxpayers of this country but by the > shareholders of the stock. This is a very bad joke! U.S. utilities are _nominally_ 'private' companies, but when did you _ever_ see a utility shareholder have to guarantee any losses? Just look at the current B.S. going on in California regarding 'stranded' costs, as the utilities are being asked to act like a real private company and actually compete. With the 'revolving door' between these 'private companies' and the regulatory agencies going on for 80+ years, one has to stretch the meaning of ordinary words to the breaking point to conclude that any of these companies are actually 'private'. ------------------------------ From: lwinson@bbs.cpcn.com (Lee Winson) Subject: Re: Monopolies and Microeconomics Date: 25 Nov 1997 00:58:34 GMT Organization: The PACSIBM SIG BBS Per Adam K's post, I take strong exception to it: > The issue is the monopoly. A monopoly is a privilege granted by > government to one person at the expense of another. A monopoly is NOT granted "at the expense of another". If I invent and patent a Widget, and sell them, no one loses anything. If it weren't for me, Widgets wouldn't exist at all. By selling them, people get the benefit of them and I make money. In the case of govt-sanctioned utility monopolies, the government limits the price I can charge and defines the services I must provide. I cannot set the price at whatever the market will bear, rather what the government says. I am by no means protected against loss of my investment. The Penn Central railroad was a public utility, with its rates and services defined by the government, yet investors lost their money. There have been plenty of utility investors who lost money. But there's a more important issue about "competition" in the telephone business. Economically, competition that all players have full knowledge of the marketplace. I say the telephone industry is horrible in this regard, more so than ever. If I buy a quart of milk, the price is clearly marked on the shelf. (Some consumer advocates demand it be marked on each carton!) But how much do telephone calls cost? A pay phone has a sticker 35c for a local call. How long do they give you? How far is "local"? How much for overtime? In the old Bell System days you could dial the Operator and get clear answers to these questions. They published rates in the front of the phone book and mailed out leaflets. No more. Today they tell me one charge if I make an "automated" Operator assisted call, but another if the Operator handles it. Isn't, by definition, an "operator assisted call" one where an operator has to be involved? Today they tell me I'll pay one rate if I use 800 CALL ATT to access their network, but another rate by other means. The above is just AT&T. I've tried getting rate info from MCI and Sprint as well as Alternative Oper Services, and got nowhere but fast busy signals or forgotten on hold. As I said, if I buy a quart of milk, its contents are clearly labled as its price. As a consumer, I can KNOWLEDGEABLY decide whether I want to pay a few cents more at a convenience store or save money at a supermarket. I can NOT make such decisions anymore about telephone service. And I'm convinced the new breed marketing people want it that way. For the moment, "competition" in the phone industry is a joke. You can't choose if you don't know what it's costing you. The people reading this newsgroup generally understand telephone rates. How about John Q. Public? Before the pro-competition folks reply and tell me how evil and unfair the old Bell System was, please consider: Do you really think it's fair for them to understand the difference between 'automated' and 'non-automated' 'Operator Assisted'"? Especially while they're standing in the rain at a pay phone, in the dark, trying to get help for a flat tire? [TELECOM Digest Editor's Note: Your final paragraph above is about the most important one in this entire debate. Far too often, discussions in this forum about what is right and what is wrong in the telecom industry centers on relatively sophisticated matters in which the readers of this Digest are quite fluent, but of which the general public is quite ignorant. I think you say quite correctly that at this point in time, telecom competition is a joke. PAT] ------------------------------ From: hpa@transmeta.com (H. Peter Anvin) Subject: Re: "Spambone" Spam Backbone Press Release From Sanford Wallace Date: 24 Nov 1997 04:24:06 GMT Organization: Transmeta Corporation, Santa Clara CA Reply-To: hpa@transmeta.com (H. Peter Anvin) johnl@iecc.com (John R. Levine) wrote in comp.dcom.telecom: > Sure. Remember, the actual business of spamming is in selling spam > software, services, and address lists (many if not most of which are > obsolete or just plain wrong) to suckers. Whether or not they get > delivered is a detail. Indeed, considering how much grief they get > from the recipients when the mail really is delivered, a spambone that > couldn't deliver to Internet addresses would be less hassle all > around. You know, if Spamford actually pulls *this* one off, I have to say he's still scum, but he'd actually be doing the rest of the net a favour ... -hpa PGP: 2047/2A960705 BA 03 D3 2C 14 A8 A8 BD 1E DF FE 69 EE 35 BD 74 See http://www.zytor.com/~hpa/ for web page and full PGP public key ------------------------------ From: jra@scfn.thpl.lib.fl.us (Jay R. Ashworth) Subject: Re: "Spambone" Spam Backbone Press Release From Sanford Wallace Date: 25 Nov 1997 00:43:35 GMT Organization: Ashworth & Associates On 23 Nov 1997 14:38:32 -0500, Mark W. Schumann wrote: [ quoting me ] > It has been observed, on the mailing list of the North American > Network Operators Group, that they're going to have a _really_ hard > time finding people to actually peer with them. Since the operators > of most of the backbones in the US are on that list, it may get > interesting. But why would Spamford care? He doesn't make his > money selling spammed products. He makes his money selling spam > services. You can just as easily do the latter on a dedicated > spambone that goes nowhere. The fools he sells to would never know > the difference. They're stupid. They're not _that_ stupid. They're playing the numbers. They spam enough people to get an acceptable hit rate. If they get a _zero_ hit rate, things _will_ change. Cheers, Jay R. Ashworth jra@baylink.com Member of the Technical Staff Unsolicited Commercial Emailers Sued The Suncoast Freenet "Two words: Darth Doogie." -- Jason Colby, Tampa Bay, Florida on alt.fan.heinlein +1 813 790 7592 ------------------------------ End of TELECOM Digest V17 #328 ******************************