low bandwidth but geographically comprehensive connectivity has high value

Verizon introduced its National Discount Plan (NDP) on June 14, 2007. This “new, industry-leading, generally available plan for DS1 and DS3 Special Access services” offered terms that depended on a customer’s national volume of DS1s and DS3s purchased from Verizon.  Publicly available FCC annual access tariff filings suggests that Verizon sold under the NDP about $100 million of services in 2008.[1]

Rate element revenue under the NDP suggests the high value of relatively low-bandwidth, geographically comprehensive connectivity. Within Verizon’s historic Bell Atlantic service area, services associated with DS1s account for 89% of NDP revenue, while services associated with DS3s account for only the remaining 11%.  Among all interstate special access DS1 and DS3 service revenues, DS1s have a 59% share.  The national comprehensiveness of the NDP shifts Verizon connectivity revenue weight toward lower-bandwidth connectivity (DS1s).

The NDP revenue distribution across zones suggests the importance of geographically comprehensive connectivity.  NDP rate elements specify three zones.  NDP customers averaged 10 DS1 channel terminations per inter-office link in zone 1, 7  per inter-office link in zone 2, and 2 in zone 3.  Average DS1 interoffice mileage was 10 miles in zone 1, 14 miles in zone 2 , and 19 miles in zone 3.  Similar over-all patterns exist for NDP customers’ DS3 units.[2] The progression from zone 1 to zone 3 thus indicates more geographically dispersed network traffic sources.

The majority of NDP revenue is from zone 3 services.  Zones 1, 2, and 3 account for 20%, 21%, and 58% of NDP revenue, respectively.  For all Verizon offerings of DS1 and DS3 services in the historic Bell Atlantic region, zones 1, 2, and 3 account for 37%, 21%, and 42% of revenue, respectively. Hence zone 3, the zone with the most dispersed telecom traffic sources (relatively rural areas), generates a relatively large amount of revenue.  That’s even more true for customers who purchase services under the NDP.

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NDP rate elements with positive demand for Verizon’s historic Bell Atlantic and Nynex service regions, as well as NDP revenue summaries for the historic Bell Atlantic region, are available as a webpage and an Excel spreadsheet.

Notes:

[1] The quoted phrase is from a publicly available Verizon document describing the NDP.  Here’s the press release announcing the NDP. See also some analysis of the NDP in relation to telecom service innovation.  Verizon NDP revenue in the historic Bell Atlantic service area in 2008 was $52 million, and in the historic Nynex region (New York and New England), $34 million.  The relative size of Verizon’s local telephone companies elsewhere, especially California and Florida, suggests a total of about $100 million in NDP revenue.

[2] Compared to DS1s, DS3 channel termination concentration is much lower.  DS3 average inter-office mileage is also greater.  These facts are consistent with greater investment in point-to-point traffic management of more expensive DS3 service.

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