telecom service innovation

On June 14, 2007, Verizon unveiled a National Discount Plan (NDP) for its DS1 and DS3 special access customers.  In a press release announcing the new offering, a Verizon Vice President declared:

In addition to serving our wholesale customers over one of the most advanced, reliable networks in the country, we’re offering a new discount plan that offers our customers an easier way to do business with us.

The press release summarized the features of the new offering:

One of the most innovative aspects of the NDP is the national portability of circuits, which allows customers to manage one nationwide commitment, rather than a series of regional commitments, and still receive discounted pricing on all DS-1 and DS-3 special access services.  For example, a customer can terminate a circuit in Virginia and add a circuit in California in response to business needs, and not worry about termination penalties or meeting regional commitments, as long as the customer meets its nationwide commitments for rate elements known as channel terminations and channel mileage.*

Among other features of the NDP are the choice of commitment levels and a banded flat-rate structure for DS-3 mileage.  Under NDP, customers can choose from either a Premier or Standard Commitment Matrix.  The choice of the commitment matrix determines the percentage of in-service quantities that must be committed to the NDP and the discount structure that will be applied to the customer’s in-service quantities of DS-1 and DS-3 services.

“Another key advantage of our pricing plan is that, for the first time, Verizon is offering DS-3 mileage in a banded flat-rate structure” said [the Verizon VP].  “With this structure, our customers can easily and conveniently determine the mileage rate for a DS-3 circuit within a band – for example, within the 0-5 miles band.  Combined with the NDP discounts on channel mileage, this rate structure provides customers with what they have been looking for: convenience and competitive pricing.”

* Additional terms, conditions, and restrictions apply to all services described herein. You should not rely on any summary or other information of any service described herein, and instead should consult Verizon’s Tariffs for all relevant terms relating to such service.

Verizon’s NDP shows nominal rate element innovation that’s impressive in magnitude and timing.  Rate elements for the NDP first appear in Verizon’s public FCC annual interstate access tariff filing on June 16, 2008.[1]  The NDP added about 20,000 new rate elements to the roughly 10,000 rate elements listed in the special access and trunking rate detail filings for Verizon’s historic Bell Atlantic service area.  The access filing includes units sold for each rate element in the previous year (2007).[2]  None of the new NDP rate elements had positive demand.

Knowing the relative industry significance of different rate elements contributes to efficient use of regulatory effort. Data for units sold of each rate element in 2008 are included in Verizon’s annual access tariff filing on June 16, 2009. Among about 27,000 NPD rate elements filed in 2009, 47 rate elements had non-zero units sold.  These rate elements accounted for about $52 million in interstate special access revenue.  That’s about 8% of all revenue reported for Verizon’s historic Bell Atlantic area interstate special access rate elements.

Overall, the total number of interstate special access and trunking rate elements with non-zero demand in Verizon’s historic Bell Atlantic service area rose through the 1990s and then was roughly flat in the 2000s.  From 1990 to 1999, the total number increased from 378  to 1177.   The total reached 1414 in 2000, and then remained about that level through to 2009.  Rate elements once established typically are not eliminated over time, and rate elements show considerable revenue inertia.  Given these facts, the figures for the total number of non-zero rate elements suggests less real service innovation occurred in the historic Bell Atlantic service area in the 2000s than did in the 1990s.

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Counts of special access and trunking rate elements in the historic Bell Atlantic service area, 1990-2009, are available as a webpage and an Excel spreadsheet.

Notes:

[1] These public filings are freely available online through the FCC’s Electronic Tariff Filing System.  Access filings for the historic Bell Atlantic and US West service areas are also available online in an unofficial but more easily accessible compilation.

[2] Units sold in the previous year is called base period demand in the FCC annual access tariff filings.

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