Saturday, May 21, 2005

It's all about money: the bond commission

The Advertiser's article on the bond commission ruling approving the July 16th referendum focused on the mechanisms of arriving at that decision and the delaying tactics used by BellSouth and Cox—tactics which failed. But the Advocate's story chiefly looks ahead to the Public Service Commission (PSC) and the possibilities for mischief there.

The PSC is charged not only with setting rates for LUS but also, oddly, for making sure that those rates are higher (yes, higher) than what LUS might otherwise decide to charge. This oddity is in conflict with the most fundamental reason for the PSC's existence: to protect the consumer from monopoly-fueled overcharges. It emerges from the capture of the PSC by those it is supposed to regulate. Usually such "capture" takes place quietly and through the backroom persuasions of lobbyists and "influentials." But in this case it takes place through the more naked exercise of state power: law.

Act 793, last year's compromise bill that mitigated BellSouth's attempt to outlaw LUS' project, includes a clause that sends LUS to the PSC for regulation to ensure that the price LUS charges includes amounts tacked onto the "paper costs" that equal what the PSC (under heavy lobbying by its familiar friend BellSouth) can be convinced to believe is the cost of taxes, right-of-way fees, poles and anything else that can be construed to be an expense of a private company that a public utility does not pay. Notice that it is nonsensical to charge your citizen-customers for taxes, especially taxes to yourself that you do not pay. Notice that it is nonsensical to charge your citizen-customers for renting property you own. Notice that all this "extra" charge goes into the "in lieu of tax" category that opponents have tried to make into an issue...but that they don't bother to go after BellSouth or even mention that their ally has made what they ask for—"returning ILOT"— impossible.

All that is a fair chunk of what local BellSouth chieftain John Williams' father was worried about when he asked for delay until the PSC issued its rules:

BellSouth Louisiana Vice-President Tommy Williams told the commission Thursday it should wait for those rules to be finalized -- and for a third feasibility study on the project -- before approving the vote and bond issuance.

At issue, Williams said, is what he called "uncertainty" over the proper interpretation of a state law passed last summer.

Williams pere apparently didn't talk about forcing faux costs on LUS, instead he referred to "uncertainty" over cross-subsidization; and it's true that those will be a weird and new thing for the PSC to consider since it is much more likely, in the usual run of events, to insist that profits from related ventures (like the profits from BellSouth's minority stake in Cingular) be considered when corporation apply to raise their rates at the PSC. But even the obscure reference to cross-subsidization doesn't really conceal much about what BellSouth actually hopes to do at the PSC. The PSC doesn't usually worry about being obligated to force higher costs on customers because they are disallowing a desire by a regulated company to invest in lower prices locally by using money from its other operations. In the normal run of events that would be considered a "good thing." But hey, preventing LUS from doing what the PSC would encourage BellSouth to do is what BellSouth's law forces them to do.

From the point of view of BellSouth it's all about the money. It's real interest in regulation at the FCC isn't "fairness," it is in using the state to artificially maintain as much of its current price as it can. It doesn't want to lower its prices; it wants to raise LUS'. What BellSouth will want to do at the PSC is force higher prices on LUS than it would otherwise consider. It is all about the money. What the corporations have come to regard as "their" money.

Don't let that slip by you the next time these guys come at you claiming to be doing something "for the taxpayers" or out of "concern for the citizens of Lafayette." That is, simply put, a lie. Their acts, if not their words, are all about insuring that the price you pay is as high as is possible. That's the real agenda and what you should remember when asked to believe anything that implies that they care about you or Lafayette.

6 comments:

Anonymous said...

John: I posted this on the Fiber 411 site. But I send it to you in hopes that you can explain it to me. Tim Supple

My company is an Application Provider Service (ASP). That is, we provide use of our data base program over the internet. Instead of a client buying and installing a business application program, they buy a license to use the program anywhere in the world over the internet. I am installing a backup server and need a higher bandwidth. LUS has fiber right outside of my building, literally. But, LUS does not sell directly to a business; you must go through one of the retailers that they wholesale to. I received a quote from one these retailers at $950 per month. I called Cox and their price was $350 per month. Which do you think I should choose? As I understand it, LUS has a minimum $650 per month per location to a premises (building) charge to its retailers. The $300 per month difference must cover the retailers cost, operating overhead and profit. I have no problem with this markup. I do not question their pricing structure, it’s their business.

PART 2: My question is about the LUS pricing structure. How will LUS lower cost to businesses with this pricing structure? Who would use them at this cost? If there is a plan to lower the businesses cost of LUS fiber to be competitive with other providers, why haven’t they done it? LUS has fiber all over town, why can’t a business use it at a competitive price? Something is very, very wrong. If fiber to the business is essential to economic development, why is it not being deployed now? Something doesn’t make sense. What is the plan?

I challenge each one of you (especially profiber proponents) to call LUS and the other providers and price 3 to 5 megabytes of bandwidth to your business. Please tell me what you find.

John said...

Tim,

I'm pretty sure this is not actually a comment on the post it is attached to...I'd like to encourage folks to use this forum for relatively focused conversation having at least something to do with the original post.

That point of etiquette aside for the moment: I don't much about specific pricing on the current wholesale business and if there is anything I have learned not to mix into it is one man's business deals with another. (I'll talk politics much sooner. ;-) ) I imagine that there are lots of specifics to what are essentially one off deals with wholesale providers. If I were you--or a reader--I'd be very leery of concluding anything about a deal provided for one locale and setup for another purchaser. I'd suggest that you ask your question of Terry Huval directly. (He did answer those 40+ questions, I believe.) Or, more reasonably, the salespeople at the wholesale distributors. I'd ask more than one of the wholesalers for a price, by the way. My understanding is that they are set up to pursue big accounts and that might have something to do with why they don't seem too eager to deal with you. I'd guess is that they don't really want to deal with folks looking for bandwidth in the residential range of 3-5 megs.

I don't really think this question is for me--what do I have to do with the deal cut by wholesale providers to large businesses to ride onto LUS' current fiber ring? My guess is that the question is instead intended to throw doubt on the idea that LUS will cut a better deal for regular businesses than, say, Cox. If so, it is a red herring. What LUS's wholesale providers charge large business for one-off specialized hookups has nothing to do with what LUS will charge small business owners for services that are more similar to high-end residential packages than to specialized services provided industrial customers. (I'd think this is also true in their electrical business as well, though I'm not privy to that either.)

My recollection has been that LUS has always promised the same around 20% savings to small businesses that it provides to residential customers. A quick pass through my files reveals the following from Terry Huval on March 14th in the Advertiser:

"Business customers will also be able to take advantage of advanced services that will generate greater revenue than the typical residential customer. In all cases, LUS telecommunications customers will be able to experience an approximately 20 percent reduction in their Cable TV, Telephone & Internet service bills."

That seems pretty clear to me. Short of believing it a lie, I'd think you would too. By my way of figuring that means that you could save around 70 dollars a month off a 350 dollar bill taking you to about 280. Still pricey by residential standards but if you had much business but you'd probably actually use a lot more bandwidth than a single home.

PS...You've mentioned your ASP business several times. What's it called?

Anonymous said...

Took your advise and sent a letter to Terry asking him how I could go about getting on the LUS fiber and at what cost.

But it still leaves me wondering about the 100 megs that Mike Stagg said would be available to LUS fiber customers. If LUS resellers are asking $950 per month for 3 megs, what will 100 megs cost?

Now I don't know if this is true or not, but 2 of the retailers told me that LUS will not be selling directly to buisness. Buisness will have to go through the retailers buying from LUS. Do you know anything about this part of the plan? Tim

John said...

I'm glad you took my advice and talked to Terry...it nice to be able to email the boss and have an answer isn't it? Try that with Duane Ackerman...

But with the rest of your post I have a problem. You don't seem to actually be trying to respond to the points I raise. I tried to actually, to the best of my knowledge respond to your questions. But you are not acknowledging that.

First we slide to a new question: the 100 megs issue. If you saw the Fiber for the Future show last night you would have heard Terry Huval say the 100 meg thing again. I presume it will be the higher-priced tier but it should be available. The reason folks say 100 megs is because that is the low end of what you can buy from suppliers. The local net will run at that speed or higher. What you buy will be throttled down from that or some higher speed.

Now the last part of your question is what makes me really uneasy: instead of responding to what I hoped was a pretty clear presentation about the difference between custom installations for large companies and packaged products for small businesses you just ignore that and move on to reassert the same false claim about not serving businesses adequately in another way. The evidence in the post you respond to (and I cite a reference you can check) is that all customers including small businesses will save 20% That's real money.

As far as the new claim: its false and strongly suspect that you know it is false. Even if some wholesalers carelessly said something like what you recount you really shouldn't repeat it without noting that from the beginning LUS has made a very clear differentiation between large business and small business markets. They are not going to horn in on the business of their wholesalers who provide a value-added product to large users. But they will offer standardized small business packages. I really think you know that. It has been said again and again. And it makes perfect sense: why should LUS leave that market untapped? No way.

And I'm still curious about which ASP you partner in. I'd think the symmetrical bandwidth and much higher speeds available from LUS would be attractive to most folks in that position. I don't understand an ASP provider that would be satisfied with 3-5 megs of download and a small fraction of that in upload speeds.

Anonymous said...

Didn't know you were asking question, but I will answer your last message as best I can.
1st. You write "The reason folks say 100 megs is because that is the low end of what you can buy from suppliers. The local net will run at that speed or higher. What you buy will be throttled down from that or some higher speed." Terry says they have 11 wholesale customer with total 115 circuits, highest user is 2.4 Gbps, average is 35.8 mbps. There is no low end you can buy from retailers, but according to Doug Menefee: “I don't think that $650 is the correct number, but I'm checking into it. The typical T-1 line is 450-600/mo.” The retailers in the past have told me $650, but I don’t know. I asked Terry and he answered “The rates to provide bandwidth on the existing LUS system is based largely on how much infrastructure it takes LUS to build its facilities to the specific customer location. These rates comprise competitively-sensitive marking information as protected by state law.” So Terry would tell me either. Also, Terry wrote me this "Our wholesale model will continue to be in place for large commercial customers, which we have roughly defined as customers wanting services of T1 and above." As you may know T-1 is 1.5 mbps. So I would check your assumption of 100 mbps being the low end. As a comparative, here are Bristol prices for business:
Business High Speed Internet Service:

4 secure e-mail accounts
1 static IP address
Unlimited Users

*ZoomNet 512K Service $ 40.46
Download speed of up to 512K/Upload speed up to 256K
*ZoomNet 1.5Meg Service $ 76.46
Download speed of up to 1.5 Megs/Upload speed up to 384K

*ZoomNet 3 Meg Service $ 134.96
Download speed of up to 3 Megs/Upload speed up to 512K



*No modem required for service. All installation fees waived for a limited time!


OptiNet Dedicated High Speed Services:
Synchronous, dedicated connections
Hosted web site
10 secure e-mail accounts
1 static IP address
Unlimited Users


*256K Dedicated Connection $150.00/month

*384K Dedicated Connection $175.00/month

*512K Dedicated Connection $200.00/month

*768K Dedicated Connection $400.00/month

*1.5 Mbps (T-1) Dedicated Connection, 1 class C IP subnet $800.00/month

I wanted was to download 2 Gbps files daily. Cox was $184.95 for 3 mbps down and 512up, shared but guarantee 80% minimum or $369.95 for 1.5mbps up and down. The minumum charge from the LUS retailer was $950 for 3 mbps up and down. My point being that, if in Bristol, 1.5 megs dedicated is $800 per month and highest shared is 3 mbps up and 512 down for $134/month in Bristol, how much do you think 100 mbps share or dedicated will be here. If you don't know, you don't know, I don't either, but I assume it will be over $800 per month.

So all that being said, I still don’t know what LUS would charge any buisness, much less mine. All I have is a quote for 3 Mbps up and down for $950 per month from a retailer. Which, by the way, was the same price I got last year.

2nd: The part that made you uneasy, you write: "The evidence in the post you respond to (and I cite a reference you can check) is that all customers including small businesses will save 20% That's real money." I ask, 20% less then what? Is that whatever others are charging? If rates of other providers drop, can you see how that may affect their ability to pay back debt? When I asked Terry "What will be the LUS bandwith charge to be?" He answered "The rate for bandwidth will be based on cost and the market".

Part 3 You write: "As far as the new claim: its false and strongly suspect that you know it is false." You really have to stop making these accusations. I didn't make the assertion it was correct. I told you what the retailer told me, and I asked you if you knew anything about it. In retrospect I think he also was thinking in terms of larger commercial accounts. I already have 1 mbps down, 256 kbps up for $74.95 from Cox. That’s the basic business account. I assume Terry’s answer is the best I am going to get: "As far as the future is concerned, our FTTH proposal is designed to provide direct LUS retail services to small business and residential consumers. Our wholesale model will continue to be in place for large commercial customers, which we have roughly defined as customers wanting services of T1 and above. Usually customers wanting that type of service will also be interested in some of the other broadband and Internet support services that our typical wholesaler will offer". If you think anything above T-1(1.5 Mbps) is large commercial accounts, then how many customers in Lafayette would pay a retailer for T-1 (1.5 mbps) to the business or the for that matter to the home? (That’s a question). For point of reference the highest residential bandwidth offered by Bristol is “*ZoomNet 3 Meg Service $ 39.56 Download speed of up to 3 Megs/Upload speed up to 256K” (this is shared not dedicated.)

As to my ASP. It is called Ilandman.com. Its a specailty application for landmen in the oil and gas buisness. The bandwidth is for the 2nd backup server. The great thing about an ASP is the customer only needs the browsers application on the internet. Nothing installed or save on his hardrive. He stores and processes data on my server. Only prints or copies limited data at any one time. A wireless laptop on dial up works fine. 56kbps is all you need.

If you have any information to give me please feel free to send it.

Tim

John said...

Tim,

This has gotten to be way too much in a space that it was never appropriate for, I agree.

My basic point remains unchanged. As nearly as I can figure from your presentation Terry Huval has confirmed my understanding which I presented in response to your first question: There will be, as has always been said there would be, residential, small business, and wholesale market segments. LUS will handle the standardized, essentially raw bandwidth portions--the residential and small business markets. Expect a substantial discount there. Large business customers will remain with wholesalers who are crafting one-off custom solutions. The raw bandwidth is only one part of what makes a customer go to a wholesaler--the rest is customization and QoS issues. If you're willing to pay the extra for the management you'll need to go to a specialty provider.

All that aside it is and should be crystal clear that LUS' plan will be at least as advantageous for the small business owner--and that is the category that I would place the business you describe since you don't need anything beyond relatively small raw bandwidth--as the residential user. Both will get hefty price breaks.

Oh --I like ASPs; the idea is nifty and should save the consumer money on software and, as you point out, enables a pretty radical mobility. I can see how it would be especially useful for landmen.