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.

Available data:

King Lear’s great falls: Robert Falls directs at Shakespeare Theatre

Among the cocky young men in the new ruler’s entourage, one wears a t-shirt declaring, “business is good.”  The back of his t-shirt adds, “my business is killing.”  Such a combination of power, inhumane interests, and brutality, writ large, animates Shakespeare’s King Lear.  For a production with the Shakespeare Theatre Company, Director Robert Falls has set King Lear in the disintegrating Yugoslavia of the early 1990s.  This magnificent King Lear presents a morally devastating realism for our times.

This realism is far from a fairy-tale synopsis of the play. Falls observed,

So many people come at King Lear with this misguided story of ‘once upon a time, there was a nice king who had two evil daughters and a good daughter’. I still see productions like that! I felt that this play had to really honor every single character. All the characters are capable of good and evil, and we don’t often recognize the monsters that move among [within] us until it’s too late.

The opening scene is a banquet jumbling long-recognized markers of high and low social status.  A huge portrait of King Lear as a young man hangs in the background.  The image is that of the young Stacy Keach, the great Shakespearean actor who is playing King Lear.  Like many rulers of dictatorial nation-states that have emerged over the past century, King Lear appears as a despot who has created his own national history and his own personal position of power.

Laura Odeh, playing Cordelia, effectively brings out questions about Cordelia’s moral commitments. When asked to declare her love for her father as part of a shallow public ritual, Cordelia literally says, “Nothing.”  This is conventionally interpreted as indicating her sincerity, earnestness, and dutifulness. Odeh’s acting admits no such myth.  Most sympathetically interpreted here as being slightly autistic, Cordelia soon shows acute social skills.  Her farewell to her sisters contains sophisticated relational aggression:

I know you what you are;
And, like a sister, am most loath to call
Your faults as they are named. Love well our father.
To your professed bosoms I commit him;
But yet, alas, stood I within his grace,
I would prefer him to a better place.
So farewell to you both.

The phrase “most loath to call your faults” is like “I won’t mention your drunkenness”; “your professed bosoms” is like “your so-called love”; and “I would prefer him to a better place” is hardly sisterly.  Odeh delivers these lines brilliantly.  Few in the audience could miss how Cordelia is using words.

Jonno Roberts as Edmund and Chris Genebach as Cornwall play well contrasting types of male monsters.  Edmund is a psychopath who consciously acts all his own emotions  as instruments of his small, hard, amoral core of interests. Edmund preys on his father’s childish credulity.  Cornwall is Edmund turned inside out.  The socio-economic-cultural circumstances of competition for high status among men and sexual access to women determine who Cornwall is and what he does.  In the setting of this production, Cornwall is a brutish thug.

The trajectory of King Lear is squalor and death.  Falls’ production takes King Lear all the way to being a homeless person rummaging in a battle-ravaged city transformed into a garbage dump. The elaborate setting includes strewn plastic garbage bags, twisted piles of metal, an upended half of a destroyed car, and partially demolished, black buildings. The broken sections of the buildings are shiny black like the plastic garbage bags. They thus add a surreal overtone to the scene.

Death is insistently represented and magnified in this production.  Cornwall and the servant who intervenes to try to stop Cornwall from gouging out Gloucester’s eyes both die in horrifying ways that go beyond the texts of King Lear.  Regan’s response to her husband’s death shocks emotionally with actions that none of the texts requires.  Gloucester dies onstage in his son’s arms.  Lear appears carrying the naked, dead Cordelia in a scene worthy of Greek tragedy. Lear’s death, in turn, Stacy Keach powerfully plays with a fleeting taste of his daughter’s spirit.  Both Goneril and Regan die onstage with savage, terrifying actions.

These and other directorial choices that modify or augment the texts of King Lear accentuate the brutish horror of the play. One reviewer praises Falls for being “willing to show us the truth of this story full in the face.”  Another reviewer observes:

There’s choking and shooting and raping in this show, too – all done on stage. Gosh! I don’t think I want to be an actress when I grow up anymore!! How it was all staged is remarkable, but still very confusing and disturbing to me.

Gloucester declares, “As flies to wanton boys are we to th’ gods; / They kill us for their sport.”  King Lear truly is a confusing and disturbing play, and this production, especially so.

The realism of this production overwhelms a key play within King Lear.  Edgar pretends to take his blind father Gloucester to a high cliff at Dover. Gloucester jumps from the imagined cliff. This play within the play is produced only in the imagination, without any help from the stage’s setting.  Yet later a hole for disposing bodies is opened in the stage.  An image of that hole, slightly depressing that stage section, or some other staged effect would have better connected Edgar’s play to the play as a whole.

Just like King Lear, Edgar’s play deserves to be taken seriously.  Following Gloucester’s illusory leap, Edgar explains to the audience, “Had he been where he thought, / by this had thought been past.” But he wasn’t where he thought, and thought and life go on.

Hadst thou been aught but gossamer, feathers, air,
So many fathom down precipitating,
Thou’dst shivered like an egg; but thou dost breathe,
Hast heavy substance, bleed’st not, speak’st, art sound.
…
Thy life’s a miracle. Speak yet again.

Shakespeare, a profoundly self-conscious playwright, recognizes that real life is made from more than realism.

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King Lear by William Shakespeare, directed by Robert Falls, at the Shakespeare Theatre Company’s Sidney Harmon Hall, June 16 to July 26, 2009.

Note: Texts of King Lear quoted above are from Harbage, ed., William Shakespeare: The Complete Works, The Pelican Text Revised (Viking Penguin: 1977).

a new era of tighter regulation

The VHSL Basketball Officials Camp has a second session running July 20-23, 2009.  You will get much more out of this camp than your average conference where you just sit around and listen to presentations.  This is live regulatory experience under the guidance of some of the finest regulators on the planet.  Good regulation is vitally important.  It’s time to start making calls, and making them right.  I highly recommend this camp to all regulators for professional development.