Month: July 2009

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.

ancient Greek inscriptions: some early content economics

Poets in ancient Greece were like opinion columnists in leading newspapers of the late twentieth century. The great epic poet Homer was the common teacher of praiseworthy behavior.  Epic poetry defined heroism, and the epic poet gave public prestige and dignity to events he deemed worthy for poetry.  To compose epic poetry required literacy, intensive study of past events and authorities, and mastery of dactylic hexameter couplets.  Few persons could plausibly aspire to write words that could measure up to a heroic standard:

Though deep, yet clear; though gentle, yet not dull;
Strong without rage, without o’erflowing full.[1]

Tragic and comic poetry were the featured form of speech at important civic festivals,  the City (Great) Dionysia and the Lenaea.  The most widely admired public teachers were poets.

However, in the common business of inscribing dedicatory, funerary, administrative, and honorific monuments, few paid the price of a poet’s services.  Of surviving inscriptions at the leading pan-Hellenic shrine at Delphi from the sixth century BGC through the third century GC, only about 1% of inscriptions are in verse.  In Athens, the share of verse inscriptions seems to have fallen with the development of democracy and Greek culture.  Surviving inscriptions up through the sixth century BGC are about 25% verse; from the fifth century BGC, about 8% verse; and from the fourth century BGC, about 4% verse. Moreover, verse inscriptions typically were not attributed to a poet, and the poets who composed verse epigrams were not well known.[2] A leading scholar of Hellenistic epigrams observed:

Throughout the genre’s history, moreover, many patrons did not trouble to hire professionals to compose their epigrams; they just did it themselves.  …

A striking example of poor yet plentiful, epigraphic verse, from the mid-third century B.C., is the series of poems inscribed at the sanctuary of Artemidorus of Perge on Thera.  It is hard to imagine that Artemidorus paid a professional to compose these.  If he did, he was badly swindled.[3]

Physical monuments are relatively expensive to construct.  Words inscribed in stone endure for a long time.  Most stone monuments in ancient Greece did not have great public importance.  The market-driving attribute of the words inscribed on most stone monuments was that the words satisfied well the patron’s interest. Words that the patron himself or herself wrote, or words that said in prose exactly what the patron wanted to be said, could do this better than could professional poetry.

Beginning at the end of the fourth century, verse epigrams became a focus of elite literary art.  One scholar has speculated:

What perhaps happened in the fourth century [BGC] was that inscriptional epigrams were collected for circulation as reading material for pleasure, as opposed to earlier professional use by stone-cutters.[4]

Epigram writers studied carefully the tradition of inscribed verse epigrams and artistically varied generic conventions.  Lucillius, a poet from the first century GC, mocked with a pseudo-funerary epigram what had become poets’ zeal for writing epigrams:

Although nobody has died here, wanderer,
Marcus the poet has constructed a tomb,
composed the following monostichic epigram and had it engraved:
“Cry for Maximus from Ephesus, twelve years old…”[5]

Part of the humor here is that, when writing epigrams became a literary art, funerary epigrams were written for persons who were still alive, like one might expect Maximus from Ephesus to be at twelve years old.

Collecting epigrams also became a highly valued literary activity. The Milan Papyrus has preserved a collection of verse epigrams, attributed to Posidippus, from the late third or early second century BGC.  About 40 BGC, Meleager of Gadara produced a famous collection of epigrams that he called a garland.  He thus analogized his collection of epigrams to interwoven, small, beautiful flowers.  Collecting epigrams remained an elite literary passion through to the Middle Ages.  A collection known as the Greek Anthology has been preserved in medieval manuscripts.  It represents about a thousand years of continuing elite literary work both in composing epigrams and in organizing and preserving epigrams from the past.

User-generated content and professional content have different values.  User-generated content best serves highly personal preferences.  Professional content is part of elite status competition and succeeds more broadly for socially structured pleasures.

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Read more:

Notes:

[1] From John Denham, “Cooper’s Hill.”

[2] See Peter Bing and Jon Steffen Bruss, “Introduction.” 2007.  Brill’s companion to Hellenistic epigram.  Brill’s companions in classical studies. Leiden: Brill, pp. 2-4.

[3] Id. p. 4, and p. 4, ft. 19. I’ve omitted an internal reference.

[4] Id. p. 7, ft. 26, quoting email from J. Lougovaya.

[5] Quoted and translated in Doris Myer, “The Act of Reading and the Act of Writing in Hellenistic Epigram.” 2007.  Brill’s companion to Hellenistic epigram.  Brill’s companions in classical studies. Leiden: Brill, p. 198.  Id. ft. 40 makes the point about the common practice in Lucillius’ time of funerary epigrams preceding the death of the subject.

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.

revenue inertia in communications network services

In 2008, somewhere in the mid-Atlantic region of the U.S., customers were still purchasing a total of 28 telegraph lines at a monthly rate of about $32 per line. While these twenty-first-century connections to the nineteenth century don’t have any economic significance, other seemingly outdated services generate large amounts of revenue.

Consider 56 kpbs service, which dial-up modems could approximate beginning about the year 2000.  In the historical Bell Atlantic service area (mid-Atlantic U.S.), channel terminations for 56 kbps interstate circuits are charged about $76 per month in 2009.  Revenue from all rate elements used in 56 kbps interstate services was about $17 million in 2008.  Scaled to the U.S. as a whole, that suggests about $80 million in telephone company revenue from 56 kbps interstate services in 2008.

DS1 interstate circuits, which have symmetric bandwidth of 1.544 Mbps, generate even more revenue.  Consider again data for the historical Bell Atlantic service area.  A DS1 channel termination rate element was the largest interstate rate element by revenue from 1992 through to 2008 (2’nd largest in 1990, 3’rd largest in 2009).  In 2009, DS1 interstate rate elements accounted for 40% of interstate special access/trunking revenue, excluding revenue from tandem switched access.  That amounts to about $280 million interstate DS1 revenue in 2008 in the historical Bell Atlantic region and perhaps $1.3 billion across the U.S. in 2008.

Various calculations indicate changes in DS1 prices in the historical Bell Atlantic service area.  In 1990, Bell Atlantic charged about $227 per month on monthly contract for a DS1 interstate channel termination.  In 2009,  DS1 pricing was distinguished by zone and length of contract. For channel terminations, most of the DS1 demand was on a seven-year term plan.  The rate in a seven-year contract has a 40% discount to a monthly term rate. Weighted by demand across zones, the average monthly price for a DS1 channel termination on a seven-year contract was about $130 per month.  That’s equivalent, under the current seven-year term discount of 40%, to a rate of $182 on a monthly contract. Adjusted for inflation using the GDP deflator, DS1 interstate channel termination rates decreased from 1990 to 2009 an amount equivalent to an inflation-adjusted 3.3% decrease per year. That’s a price reduction roughly comparable to over-all measures of real productivity growth in the economy.  It’s not the sort of price reduction associated with radical technological and industrial change.

Verizon’s current residential communications services offer a much different perspective on communications industry change.  Verizon currently offers for $119.99 a month (for a year plan) a Fios Triple Freedom bundle.  That bundle offers unlimited voice calling to anywhere in the U.S., Canada, and Puerto Rico (plus Home Voice Mail, Caller ID and Call Waiting), Internet service at “up to 25/15 Mbps”, and 348 digital television channels and 55 HD television channels.  Together that bundle offers orders of magnitude more bandwidth than a DS1, at total per month price lower than that of a DS1. Verizon’s residential Fios bundle indicates radical communications industry change relative to the current roughly $1.3 billion business of supplying DS1 service.

Getting persons to pay for new services is a major problem in the communications industry.  So too is getting persons not to pay a lot for antiquated services.  These two problems re-enforce each other. The good news is that solving one will help spur a solution to the other.

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