IP: DOJ asked to look at Bell Atlantic hike in ISP Centrex

[Dave Farber <farber () cis upenn edu>]

The following is from JAMES LOVE


March 21, 1997


Mr. Donald J. Russell
Chief, Telecommunications Task Force
Antitrust Division
U.S. Department of Justice
Room 8104
555 4th Street, NW
Washington, DC 20001


Via  Email to: antitrust () usdoj gov   (The DOJ's new Internet Email Address
                                      for Antitrust Problems!).


I just saw this article on the Web today, and it seems to indicate an
anticompetitive problem.  Bell Atlantic is sharply raising ISDN Centrex
rates of ISPs, at the same time that Bell Atlantic is trying to promote
its own ISP business.  You should know that within the past five years,
Bell Atlantic had filed ISDN Centrex tariffs in some states which claimed
that monthly usage costs were less than $1 per line.  But this was before
ISPs began to use the ISDN Centrex tariff for Internet connections.  The
Department of Justice telecommunication task force should open up an
investigation of the way the LECs are trying to raise costs for their
rivals, now that the LECs are permitted to enter the ISP market.  I would
also suggest looking at item such as predatory pricing (offers such as
PacBell's 5 months free ISP service for purchase of a second line and
similar promotions), and the aggressive resistance by the LECs to
permitting ISPs to deploy xDLS technologies. 
 
     Thanks.


      James Love 
      202.387.8030; love () tap org
      http://www.cptech.org 


 
          The news article regarding Bell Atlantic raising ISP centrex
rates follows:




                                                   March 17, 1997


          Bell may toll for Internet competitors


          Increase in Bell Atlantic rates will hurt some Internet
          providers


          --------------------------------------------------------


          Karen Kovatch


          [D]OWNTOWN -- Bell Atlantic Corp. isn't just a player in
          the local Internet service game, it's setting the rules
          by which all others in the business compete.


          And Bell, the region's dominant local phone company, may
          ultimately determine who wins and loses.


          In October, Bell will begin charging roughly twice what
          it does now for Centrex Extend, a service that many
          local Internet service providers (known as ISPs)
          purchase to make the Internet available at a lower cost.


          The increase comes with the blessing of the Pennsylvania
          Public Utility Commission. That panel ruled last year
          that Bell was undercutting competitors, such as AT&T, by
          offering Centrex Extend to customers under cost.


          For now, most ISPs say they won't pass the higher cost
          on to subscribers. But the new price is high enough that
          many small ISPs may be forced to shut down or scale
          back.


          "We're not the size of an AT&T or a TCG (Pittsburgh),
          we're just a little company trying to plug away here,"
          said Thomas Certo, president of USA OnRamp Inc., a
          Downtown ISP that serves about 8,000 customers in
          Western Pennsylvania and West Virginia. "It would be
          suicide for us to pay that."


          Like many of the more than 10 local ISPs, USA OnRamp
          provides Internet access through Centrex Extend.


          The service gives it the ability to set up local lines
          that reach surrounding counties, so that users there can
          dial into the company's Downtown Internet servers
          without paying a toll.


          Currently, USA OnRamp pays a flat rate for this service.


          In October, the company will have to pay the same
          per-minute fee Bell charges businesses to make local
          calls if it wants to continue using the service.


          Mr. Certo said he pays about $6,000 a month in telephone
          charges to Bell. He estimates this figure would double,
          but he has other plans.


          "It's hard enough for a company like ours to handle the
          $6,000 a month," Mr. Certo said. "So we're going to go
          with TCG."


          Mr. Certo wasn't sure yet what he'll be paying with TCG,
          but said it will be less than Bell's new bills would
          total.


          Switching to Bell competitors won't be an option for
          some smaller ISPs, though, because it will cost them too
          much to upgrade their networks.


          As a result, "A lot of them are going to look to merge
          or be consumed by larger companies," said Mr. Certo, who
          has received calls from at least two local companies who
          want to pursue that option.


          "There are about 10 ISPs in the area right now, and I
          wouldn't be surprised if we only have five come
          October."


          Mr. Certo suspects this is exactly what Bell -- which
          began competing with its ISP customers with its own
          brand of Internet service in December -- would like to
          see.


          "They have an ultimate agenda here," he said. "They are
          changing their services to make it very hard for their
          competitors to provide services at a reasonable price
          and survive."


          Bell spokeswoman Sharon Shaffer claims this isn't true.


          "The timing was unfortunate, so it did look suspicious,"
          she said.




          "But the PUC ordered us to increase our rates to favor
          AT&T. It had absolutely nothing to do with our providing
          Internet access."


          Marcus Ruscitto, president and CEO of Stargate
          Industries Inc., a Belle Vernon-based ISP, doesn't buy
          this.


          "Bell has a lot of control over how the PUC thinks," he
          claimed.


          "Their game is to rationalize anything they do and make
          people think they were forced into things. But they
          control their own destiny."


          Bell does dominate the local phone service market. As a
          result, Mr. Ruscitto is determined to continue to use
          Bell's networks, but not the company's Centrex Extend
          service.


          Stargate currently racks up about $30,000 in phone
          charges a month. Mr. Ruscitto estimates he'll pay 150 to
          200 percent more this fall.


          "I don't really have much of a choice," he said. "Even
          with competitive carriers like TCG and (WorldCom Inc.),
          things are almost always still run on a Bell network."


          Mr. Ruscitto will spend about $1 million between now and
          May to convert the system Stargate now operates through
          Centrex Extend.


          But Mr. Ruscitto is confident the investment will pay
          off; he said he would ultimately have upgraded his
          equipment anyway.


          That's because the new system will allow Stargate to
          offer premium services that command higher revenue, such
          as ISDN and digital subscriber loops.


          But many of Stargate's smaller competitors don't have
          the resources necessary to pursue such a strategy.


          "A lot of ISPs don't have the capitalization or the
          wherewithal to continue on and scale to the degree they
          need to in order to be competitive with service
          offerings and survive," Mr. Ruscitto said.


          Bell Atlantic doesn't have this worry, though. In Mr.
          Certo's mind, the company is in an excellent position.


          "They're getting service providers to buy a higher level
          of service from them, and they're also going after
          customers in the local Internet market with a service of
          their own," he said.


          =A9 1997, Pittsburgh Business Times




________________________________________________________________
James Love / love () tap org / P.O. Box 19367, Washington, DC 20036
Voice: 202/387-8030; Fax 202/234-5176
Center for Study of Responsive Law
   Consumer Project on Technology: http://www.cptech.org
   CSRL Antitrust page: http://www.essential.org/antitrust