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"Digital Bypass Report" February 1985




DIGITAL BYPASS REPORT
February 1985
 
*************** 
FRONT PAGE NEWS 
*************** 
 
IXCs, LOCAL TELCOS SUGGEST PLANS FOR 'EXPERIMENTAL' 
DISCOUNT SURCHARGE
 
     Interexchange carriers (IXCs) and local exchange 
players have filed comments with the FCC offering ideas on
how the Joint Board's recommendation for a uniform
surcharge of up to 35 cents on subscriber line charges can
be administered, initially under experimental tariff
conditions. 
     The Common Carrier Bureau's order for comments last
December was prompted by the Federal-State Joint Board's
proposal that optional alternative tariffs be permitted to
recover interstate carrier common line costs, as a partial
approach to alleviate the threat of bypass (DBR, January, 
p. l).
     In concert with the Joint Board and interested state 
commissions, the FCC has authorized carriers to file
experimental tariffs "to explore more comprehensive 
alternative tariff mechanisms for recovering the
interstate allocation of NTS [non-traffic sensitive]
costs," the commission said.
     The Joint Board's initial plan called for an 
"optional tariff," developed by the local exchange
company, that would provide discounts to high-volume users
to discourage their use of bypass facilities. 
     In turn, the exchange carrier would recoup the 
shortfall in its interstate revenues caused by the
discount through the 35-cent surcharge. 
     The alternative tariffs would be submitted to state
regulatory commissions for initial review and approval. 
If a state commission objects to a tariff or fails to act 
within 60 days of filing, the Joint Board could override
the state's action. 
 
AT&T SAYS DISCOUNT CREDITS SHOULD GO DIRECTLY TO IXCs 
 
     Commenting on the FCC's modified experimental tariff 
plan, AT&T argued that the optional tariffs must be 
structured to provide credits, based on carrier common
line payments, directly to the IXCs and not to the local
telcos. 
     The savings from these credits, AT&T said, would be
reflected in the IXC rates to discourage bypass by
high-volume toll users. 
    "Because the threat of uneconomic bypass arises from
high toll charges paid by high-volume users, it can be
combatted only by giving IXCs the means to structure toll 
rates..." AT&T said.
     Allowing the local telcos to provide direct payments 
or billing credits to customers, based on a customer's
combined interstate toll charges paid to IXCs, would be 
"administratively and technically impractical," AT&T said.
     Such an approach, AT&T added, would also place the 
IXCs at a "severe disadvantage" in pricing their services 
because they would not know the amount of credit received 
by their customers on the basis of volumes carried by 
other IXCs, and so would not know the "effective" or
competitive price of service to customers.
     "Direct credits from the LECs [local exchange
carriers] to customers of IXCs would not sufficiently 
reduce the potential for bypass by the IXCs themselves
because the IXCs would receive no relief from their 
uneconomic access cost burdens," AT&T said. 
      As to a formula for calculating the optional tariff 
credits used to reduce the IXC common line payments, AT&T 
suggested that discount credits be distributed among IXCs 
in proportion to the percentage of total carrier common 
line charges paid by each IXC in the area covered by the
tariffs.
     And AT&T argued that amounts paid for both 
originating and terminating access should be included in
calculating the credits.
 
WHILE USTA, OTHERS CALL FOR MORE LOCAL EXCHANGE CONTROL 
 
     The United States Telephone Association urged more 
flexibility in establishing guidelines for implementing 
experimental, alternative tariffs.  The USTA filed
comments jointly with the National Telephone Cooperative
Association (NTCA), the National Rural Telecom
Association, and the Organization for the Protection and
Advancement of Small Telephone Companies. 
     In support of local exchange companies, the group
suggested that conditions for managing discount credits be
controlled by the local telcos, and warned that the 
current 35-cent surcharge level would not produce the 
revenue needed to cover the discounts of the alternative
tariffs.
     Alternative tariffs, the group said, should provide
the exchange carrier with the option of giving discounts
to the interexchange carrier or giving credit to the end
user. 
     "We support the end-user credit option to enable the 
exchange carrier to enhance its own customer relations by 
identifying the credit with the customer's use of the 
exchange carrier network, rather than creating customer 
perception of the reduction in his toll bill as resulting 
solely from the efforts of the interexchange carrier," the
group said. 
     The group also suggested that discounts or credits 
should be limited to customer usage on the switched 
network, with the qualifying level of customer usage being
the total switched network use by the customer on all of
his lines.
     Concerning the 35-cent monthly surcharge, the group
expressed concern that such a plan would be 
"administratively difficult and costly," suggesting that
revenues produced from the surcharge "would have to be
spread so thin as to be of little benefit to specific 
customers." 
     The exchange carriers, according to the joint
commenters, would favor a higher initial subscriber line
charge in the effort to further deload toll costs and 
minimize bypass.
    "Implementation of the surcharge plan and evaluation
of its results will clearly demonstrate the need for
different approaches or availability of larger sums to
cope with the bypass problem," the group said.
 
*** 
FCC 
*** 
 
GRAPHIC SCANNING READY TO PART WITH DTS, CELLULAR 
INTERESTS 
 
     Graphic Scanning Corp. is preparing to relinquish
its, and its subsidiaries', interests in digital
termination service (DTS) activity, as it makes a 
"voluntary" move to sell its assets and generate cash for 
stockholders, Graphic official Jonathan Dodge told DIGITAL
BYPASS REPORT.  Graphic and its subsidiaries currently
have some 30 applications pending for DTS licenses. 
    In a related move, Graphic last month also began to 
unload some of its cellular radio interests.  Company 
officials maintain this action is unrelated to an initial 
decision by FCC Administrative Law Judge Thomas 
Fitzpatrick that said the firm indirectly controlled and
was "the real party of interest" for some 700 low-band
paging applications filed by 4 separate applicants. 
      The company said it had signed agreements to sell 
its cellular radio telephone partnership interests in 3 
Connecticut markets--Hartford, New Haven and Bridgeport,
along with systems in Los Angeles and New York.  Graphic
subsidiaries have also agreed to sell their interests in
cellular properties in Tulsa, Okla., and Houston, with the
eventual goal of selling off all cellular assets, Dodge 
told us.
 
WHILE FCC SAYS PAGING DECISION DOES NOT AFFECT PENDING
APPLICATIONS
 
     Following closely the initial decision of FCC
Administrative Law Judge Fitzpatrick, the FCC and Graphic 
Scanning Corp. were busy last month clarifying publicly 
that the matter of Graphic's relationship with A.S.D. 
Answer Service and 3 other firms does "not directly 
jeopardize" other licenses and applications pending from
Graphic.
     Reports in the press, the FCC stated, "have conveyed 
the erroneous impression that the initial decision has the
effect of placing pending applications and authorizations 
of Graphic Scanning Corp. and its subsidiaries at risk."
     The commission said that an initial decision does not
trigger any action regarding licenses or applications of
Graphic or its subsidiaries, and no decision has been made
regarding those licenses or applications. 
    Fitzpatrick's initial ruling (CC Docket Nos.
82-582-590, Jan. 9) agreed with the commission's Separated
Trial Staff finding that Graphic was the controlling
interest behind the paging applications filed by A.S.D. 
Answer Service Inc., B.W. Communications Systems Inc.,
P.A.L. Communications Systems Inc., and Vinyard 
Communications Inc. 
    Graphic also announced last month that it would ask 
the commission to overrule the initial decision concerning
A.S.D. and the other 3 firms.  The company said the ruling
would have "no material impact" on the decision to go 
ahead with its "asset distribution program."
 
CITICORP PRIVATE CARRIER REQUEST AWAITS FCC DECISION ON 
CHANNEL PLAN
 
     A Citibank application for private carrier network 
service is presently on hold with the FCC, as the 
commission reconsiders its final channeling plan for
allocating frequency to private interests looking to
resell capacity for voice and data transmission.
     Citibank subsidiary Citicorp Digital Exchange Inc. 
(CDE) was blocked from offering similar services last 
November, when the commission dismissed its DTS 
applications on the grounds that the firm is prohibited 
from offering such carrier services under the Bank Holding
Company Act (DBR, December l984, p. 3). 
     The bank apparently moved to avoid a potentially 
time-consuming challenge of the CDE decision in U.S.
Circuit Court, applying directly for common carrier 
allocation. 
     Proposing to offer private carrier, extended network 
service in 29 U.S. cities, Citibank plans to offer
interconnections of digital PBXs to high-speed lines for
voice and data, linking of company and independent
databases with Citicorp customers, and teleconferencing 
between Citicorp locations. 
     Meanwhile, the FCC has received about 600
applications for the same frequency--l7.7-l9.7 GHz--where 
Citibank has applied for specific channels.  The
commission only recently has indicated it is leaning
toward a lottery plan to be in the public notice stage
within the next 2 months. 
 
******
TELCOS
******
 
AT&T OFFERS UP NEW PRIVATE-LINE TARIFFS 
 
     With an eye toward the FCC's rescheduled special 
access tariff date of Feb. l5, AT&T has asked the 
commission to approve a new rate plan for its interstate
private-line tariffs to wipe out the artificial subsidies 
of local access costs historically contained in AT&T's
end-to-end, dedicated services prices.
     Although AT&T maintains it would be reducing prices
for its dedicated long-distance facilities by an average
of 2l%, the overall effect of the new tariffs will result 
in a price increase averaging 8.6% for end-to-end 
services. 
     The move goes along with the company's restructuring 
its pricing in line with costs, passing along the higher
access costs from the local telcos to its private-line
customers by increasing their rates.
     AT&T said the proposed rates in the new tariffs would
produce nearly $264 million in additional revenue needed
to cover its costs of providing end-to-end service and
access charges paid to local telcos.
     And the new rates, AT&T said, would raise its
earnings on private-line services to the authorized level 
of l2.75%.
     AT&T's proposed tariff package would replace 6 
existing tariffs.  The new tariffs define and establish 
rates for intercity channels between AT&T locations in
distant cities, connections to switching or 
customer-controlled-routing functions that AT&T provides
at its locations, and local access channels provided by 
local telcos or other vendors that connect customers to 
AT&T locations. 
     In the filing, AT&T also asked the FCC to allow 3 new
private-line tariffs to take effect on Feb. l5, when the
local telcos' special access charges are to go into 
effect.  Rates for AT&T long-distance, AT&T international 
long-distance, AT&T WATS and AT&T 800 service are not 
affected by the tariff proposal.
     AT&T did not specify new rates in the filing last
month, explaining that it is still evaluating its 
local-access costs based on the local telephone companies'
proposed tariffs of Dec. 3, l984. 
    The firm said it expects to file full details of its
tariffs after the FCC rules on the application that it
waive the normal 45-day period for considering new
tariffs.
 
TARIFFS WILL PERMIT SERVICE, COST FLEXIBILITY, AT&T SAYS
 
     The structure of the new tariffs would give customers
more options for configuring their private lines by 
defining new categories of connections available between
distant locations, AT&T said. 
     Under current pricing, revenues from AT&T's dedicated
long-distance facilities subsidize portions of the costs
of the local access between AT&T locations and customers' 
locations.
     The new tariffs would eliminate this subsidy by
defining and establishing rates for each portion of 
end-to-end private lines, the firm said.
     Under the proposed tariffs, AT&T customers could 
continue to obtain end-to-end communications services from
AT&T, and would also have the option of purchasing the
local access portions of their private lines from their 
local telephone companies, or from other vendors. 
     The "customer control" functions will also allow 
users of certain AT&T services to control the routing of
data or voice traffic on their private networks, according
to AT&T.
     By defining more clearly the way costs are incurred, 
the company said the structure of the new tariffs will
allow AT&T to reduce prices for its dedicated 
long-distance facilities. 
     The structure will also enable AT&T to pass along to 
users more precise costs of access supplied by the local
companies, the firm said. 
     AT&T first proposed revising its private-line tariffs
in October l983.  The FCC rejected those filings because
rates proposed at that time were based on estimates of how
much AT&T would have to pay the local telephone companies 
in access charges for connecting private lines to customer
locations.
 
AT&T-C LOOKS TO DIRECT CONNECTIONS FOR CELLULAR SERVICE 
 
     AT&T Communications is reportedly looking at 
alternative connections to route cellular carriers' 
long-distance calls directly from its network to
customers.  By avoiding the local telephone exchange for
cellular carrier connections, such a move by AT&T could in
effect create a form of service bypass. 
     Under the alternate routing plan, AT&T could route 
cellular customers via private lines leased from the local
telcos, thereby avoiding the usage-sensitive switched 
access charges now paid to telcos for use of their local
switched network. 
     Essentially, cellular carrier traffic  would be
covered under the new FCC private-line tariffs, currently 
pending at the commission.  At the same time, AT&T-C would
pay the lower, private-line access fees.
      With the AT&T-C direct connection arrangement,
cellular carriers would no longer be required to lease
private lines themselves for long-distance calls, and 
AT&T-C could bill cellular users directly, rather than the
local telco.
     The question of just how much bypass of the local
telephone exchange the cellular industry could generate is
uncertain.  Currently, existing cellular services use 
their own cellular switches along with the local telco's
switch to connect customers with the network.  Cellular 
long-distance traffic is currently routed to AT&T-C after 
being routed through these switches.
 
CELLULAR PLAN COULD OFFER BILLING, REVENUE GAINS
 
     Such a move by AT&T could open the cellular market to
the possibility of consolidated access and billing for
customers, further eroding the local telcos' revenues from
access charges, and underlining the service bypass factor.
     But the cost savings to cellular carriers is an
unproven part of the AT&T-C scenario--as cellular firms 
are currently exempted from access charge fees on 
long-distance connections anyway--although there has been 
talk of imposing some charge on the industry for provision
of its intra-LATA services. 
      For the cellular firms, the incentive could be in 
billing consolidation, from which they could derive 
additional revenue since they already handle billing for
AT&T on customer charges.  And they could, in effect, take
over the charges currently handled by the local telcos. 
     And AT&T is not concerned that the addition of 
cellular carriers to its list of private-line customers 
would add to the firm's order backlog for end-to-end
service.  Spokesman Jim Byrnes told us the cellular 
connections would not add to the decreasing backlog 
situation, given the nature of the private-line 
connection. 
     AT&T, he said, would be dealing with one line and one
party--the local telco--for service to the cellular 
carriers in the area, as opposed to arranging multiple
lines for many customers in one area. 
 
AND LONG-TERM PLAN CALLS FOR ENHANCED FUNCTIONS 
 
     AT&T-C Manager for Market Development Keith Lietzke
told us company officials would be looking down the road
toward "improved functionality" for its cellular service
connections, focusing on T-l type transmission in an
integrated services digital network (ISDN) environment. 
     For the near term, AT&T hopes to have its cellular 
routing service in operation sometime during the first
half of l985, Leitzke said.  He also agreed that the
resulting revenue increases from the consolidated billing 
services would be an adequate attraction for the carriers,
while quality of service would be important as AT&T 
upgrades its cellular lines for data and other
"paging-like" services. 
     Meanwhile, Lietzke added, the regional holding 
companies (RHCs) have been "something of a political
problem," expressing their concern that cellular routing
constitutes a form of service bypass that would grab
additonal revenues away from their Bell operating 
companies.  Lietzke disagreed on the matter of bypass,
arguing that the cellular proposal includes service with
wireline--RHC separate subsidiaries--as well as 
non-wireline independent carriers.
 
ILLINOIS BELL'S NOVALINK IS IN SERVICE
 
     Illinois Bell's Novalink fiber optic-based digital 
service went on line last month in downtown Chicago,
providing point-to-point data connections for business
users in the local telco's downtown optical fiber loop. 
     The Novalink service is providing connections for
high-speed data, voice and video transmissions at speeds
of up to 45 Mbps.  The service is currently being marketed
to medium and large-sized business customers, according to
Illinois Bell Product Manager Charles Diddia. 
     Plans call for the service to be expanded to include 
additional sections of the Chicago metropolitan area. 
(Illinois Bell, Floor 30B, 225 Randolph St., Chicago, IL
60606, 3l2/727-296l.) 
 
OHIO BELL TO INSTALL FIBER ROUTE FOR MCI
 
     Ohio Bell has contracted with MCI Communications 
Corp. to install a fiber optic transmission route for the 
interexchange carrier.  Set for completion in mid-l985, 
the new link will provide MCI with additional 
long-distance call transport capabilities for its 
customers in the Cleveland area.
     This is the first such venture for Ohio Bell and for 
the local telco's regional holding company Ameritech, 
involving the marketing of fiber optic services to an 
independent carrier.
     Ohio Bell began installing the system last December
and expects to have the fiber route ready sometime in 
June.  The link will run just over l5 miles from MCI's
downtown Cleveland switching facility to MCI's switching
facility in the Cleveland suburb of North Royalton. 
     Under terms of the deal, MCI will have exclusive use 
of the fiber optic cable transmission route for l0 years, 
with optional additional periods.  And MCI will be
responsible for maintaining the associated electronics and
switching systems while Ohio Bell will own and maintain 
the cable.
 
BELLSOUTH SIGNS WITH PARADYNE 
 
     BellSouth Advanced Systems Inc., the BellSouth 
customer premises equipment subsidiary, has signed a
3-year contract with Paradyne Corp. for distribution of 
the latter's intelligent multiplexers and modems. 
BellSouth will distribute several Paradyne modem products,
including its 2.4, 4.8 and 9.6 Kbps units and the MP-l4.4,
with l4.4 Mbps capability.  (Paradyne Corp., Largo, FL
33540, 8l3/530-2244.) 
 
OCCS
****
 
U.S. TELECOM CONSOLIDATES SERVICES
 
     United Telecommunications Inc. late last month 
announced the consolidation of its long-distance voice, 
video and data communications business into a single
marketing entity called U.S. Telecom. 
     Consolidation of the business identities by the $2.8 
billion Kansas City-based holding company includes United 
Telecom Communications Inc. (UTCI)--U.S. Telecom's
predecessor company--U.S. Telephone Inc., Isacomm Inc., 
and Uninet Inc. 
     United Telecom Chairman Paul Henson said that U.S. 
Telecom's voice and data transmission businesses represent
"a second major business thrust" for United Telecom.
Presently, $2.l billion of United Telecom's revenues come 
from its United Telephone system, providing local 
telephone service to customers in l9 states.
     "Our local exchange service is a mature business.  To
continue to grow, we have to develop a new base of
business serving other segments of the telecommunications 
market," Henson said. 
     The firm is focusing much of its growth strategy on
the construction of a $2 billion nationwide, digital fiber
optic network.  The system will eventually carry the
traffic of all the company's business units, and provide
voice, data and video transmission services to U.S. 
Telecom customers.
    "We believe our broad range of products, coupled with 
23,000 miles of network, will allow us to move quickly
into a prominent position in the inter-city 
telecommunications industry," Henson said.
     Construction of the network began last year and is 
set for completion sometime in l987, according to U.S.
Telecom President William Esrey.  Indeed, the 
consolidation of the United Telecom units coupled with the
fiber network falls in line with the firm's move to reach 
both the local and long-haul voice and data markets for 
business and residential customers. 
     "As business and residential users demand an 
increasingly varied and sophisticated range of
telecommunications services, they will seek a single
vendor that can supply and interconnect all of the
services they need," Esrey said.
     Under the plan, all 4 business units will assume the 
U.S. Telecom name for identification and marketing
activities.  Meanwhile, U.S. Telecom will assume
management responsibility for the other 3 units.
     Isacomm will continue to market voice, 
videoconferencing and shared tenant services to commercial
and residential subscribers.  Uninet will continue to 
offer enhanced data transmission services.  And U.S.
Telephone, acquired last June, will maintain its
long-distance services. 
     The organizational structure will continue as it has 
under the former UTCI format, with Esrey serving as 
president of U.S. Telecom, Richard Smith as president of
Isacomm, Thomas Pardun as president of U.S. Telephone, and
C. Thomas Taylor as president of Uninet.
 
RCA GLOBCOM PUMPS $6 MILLION INTO PAGEAMERICA 
 
     RCA Global Communications has made a $6 million
equity investment in PageAmerica Group Inc., giving RCA 
Globcom approximately l5% of the outstanding equity 
securities of PageAmerica.
     Under the deal, if RCA makes a further investment in 
PageAmerica of at least $4 million by the end of l985, it 
also has rights to purchase additional shares from
PageAmerica and from certain major shareholders at prices 
above the current market value, allowing RCA to obtain a
majority interest in PageAmerica. 
     RCA has until l989 to decide whether to invest a 
larger stake in PageAmerica and the paging industry.  "We 
see radio paging as a $4 billion-plus industry within l0
years with network-driven, value-added paging as the major
growth sector," RCA Globcom President Valerian Podmolik 
said. 
     RCA Globcom and PageAmerica currently operate a joint
venture called Radio PageAmerica.  Its network links data 
communications and telex with radio paging service, 
expanding the paging application for a variety of business
customers between the 2 firms.
     The RCA/PageAmerica joint strategy "plays to the 
strengths already in place at RCA," Podmolik said.
     The first network pagers for the joint service have
been provided to Risk Arbitrage Monitor.  The firm plans
to send data codes to its Arbitrage trading clients'
display pagers, giving them up-to-date information.  (RCA 
Global Communications, 212/806-7736.) 
 
GTE TELENET EXPANDS DATA NETWORK
 
     GTE Telenet last month announced expanded service of 
its Telenet public data network, offering asynchronous
service to 20 new cities, along with upgrades of its
existing facilities in l5 other cities to provide full
X.25 synchronous services.
     New synchronous customers can begin service this 
month through GTE's interim Dedicated Access Facility 
(DAF).  The DAF is a synchronous direct connection between
host computer systems and the Telenet network utilizing 
the X.25 protocol standard. 
     GTE's interim DAF is providing dial-up service until 
a planned permanent DAF system is installed this year 
(DBR, November l984, p. 8). 
    The Telenet system was to provide local dial-up access
from 373 U.S. cities, and to networks in 54 foreign 
countries, as the last of the total 35 cities were set to 
come on-line last month, GTE said.  (GTE Telenet
Communications Corp., 8229 Boone Blvd., Vienna, VA 22l80, 
703/442-l934.)
 
ITT CONSORTIUM TO BUILD WEST GERMAN NETWORK 
 
     A consortium of companies, including ITT Corp.'s 
German subsidiary--Standard Elektrik Lorenz (SEL), has
received an order from the West German Air force to build 
an all-digital communications network.
     The network will be designed with telecommunications 
equipment and components from all members of the
consortium, which also includes Siemens, and a division of
the Dutch Philips electronics firm.  The ITT portion of 
the network contract is worth $33 million.
     The German air force will use the system to update 
current communications channels, allowing for simultaneous
transmission of voice, data and images. 
     The network upgrade also calls for provision of
services during emergencies and traffic overload. 
     The new system, which will include digital switching 
equipment from ITT/SEL, presently consists of "several
dozen" private telephone exchanges, according to ITT. 
(ITT Communica- tions Services Inc., l00 Plaza Drive, 
Secaucus, NJ 07096, 20l/330-5452.)
 
TRIBORO ACQUIRES NORAMCO
 
     Triboro Communications Inc. announced the acquisition
last month of the capital stock and New York City 
metropolitan area telecommunications operations of the
North American Communications Corp. (NORAMCO), from its 
parent Tel-Plus Communications. 
     Under the $2.l million deal, NORAMCO's services will 
be performed by Triboro's wholly owned subsidiary, Telecom
Plus of New York City Inc.  NORAMCO's communications
operations include over 500 private telephone systems,
including major customers such as Hazeltine and Bear, 
Stearns & Co. 
     Triboro Communications is a 93% owned subsidiary also
of Tel-Plus Communications.  Tel-Plus in turn is an 80% 
owned unit of Telecom Plus International.  (Triboro 
Communications, 2l2/689-l000.)
 
******
TRENDS
******
 
EMG STUDY SEES 'CARRIER' BYPASS EMERGING OPPORTUNITY FOR
IXCs
 
     An Eastern Management Group (EMG) study--North 
American Transmission Market l985-l984--predicts
substantial growth in bypass technologies and services
among the Fortune 500, utilities, service industries and
universities. 
     The report also projects that fiber optic technology 
and carrier bypass will emerge rapidly as strong factors
in the bypass industry. 
     The EMG study says the amount of bypass will move
from 3l% in l984 to 44% in l987 for the "Fortune-type"
company; service industries' use will rise from 9% to 24% 
during the same period; utilities' current 60% bypass 
figure will rise to 70%; and universities will "explode"
from l6% to 6l% during that l984-87 span. 
     "The bypasser, whether it is the inter-exchange
carrier, the end-user or any third party, can offer 
discounts of 30-50% over the anticipated local operating
company's special access rates and still make a 
substantial return on investment," EMG said.
     The prospects for interexchange carriers (IXCs) and
carrier bypass--direct connections between the customer 
and the IXC--also look promising, EMG said.  Competition
to provide low-cost, end-to-end service will put
"considerable pressure" on local operating companies to 
offer competitive switched and special access rates.
     "If these rates are not competitive with alternative 
technologies, carrier bypass will be the only course of 
action," EMG said.
     MCI stated in a survey for the report, EMG said, that
"it would not hesitate to avoid a BOC, whenever 
permissible and cost-effective for MCI. 
     EMG quoted AT&T as saying if large customers approach
them for direct connections, "they are willing to talk."
     The EMG study is also high on fiber optic technology 
as a key bypass component.  Using fiber, "a strong
business case" can be made for an "entrepreneur" offering 
carrier bypass service in high-concentration
business/urban areas.  (The Eastern Management Group, 4 
Century Drive, Parsippany, NJ 07054, 201/267-3700.) 
 
FCC OFFICIAL CALLS INTRALATA COMPETITION 'INEVITABLE' 
 
     Opening up intraLATA (local access and transport 
areas) competition is "inevitable," according to an FCC 
official, but the timing of such deregulation, as well as 
the extent of competitive service offerings, is a matter
of debate.
     The acting chief of policy and program planning at 
the FCC's Common Carrier Bureau, Thomas Sugrue, told
attendees at the Communications Networks 1985 conference
here in Washington last month that intraLATA service will 
be "completely deregulated sometime," but noted that
opinions at the commission on the proper timing of such 
deregulation vary greatly.
     Sugrue said he wouldn't venture a guess on when such 
restrictions on intraLATA service--now provided primarily 
by local telephone operating companies on a monopoly
basis--might be lifted.  "It could be 4 weeks, 4 months, 4
years, 4 centuries.  Commissioners [Henry] Rivera and 
[Dennis] Patrick say it won't be in 4 weeks, though." 
Sugrue did say that intraLATA competiton eventually will
benefit the public interest by pushing prices of services 
toward cost.
     At a panel discussion at Comnet on accessing the 
local exchange, Lawrence Garfinkel, vice president of 
marketing services at AT&T Communications, urged that AT&T
should not be restricted from offering intraLATA services,
as it is now. 
     In a later interview with DIGITAL BYPASS REPORT, 
Garfinkel said AT&T "has no propensity to bypass," but is 
instead pressing local operators to deliver the types of
services necessary to complement sophisticated
interexchange services.  "Services to be offered by the 
intraLATA carriers must be compatible with the interLATA
carriers," he told us.
     Garfinkel said it would be more sound financially to 
allow local telcos to handle local traffic.  "When you
look at the possibility of building private local service,
you must face the financial realities.  If we can get the 
complete services from the intraLATAs, why would we want
to bypass?" 
     Nonetheless, Garfinkel noted that there is already 
intraLATA competition, citing the New York Teleport 
project, and said it is unrealistic to say intraLATA
service will forever be a monopoly business.  To do so "is
not recognizing technological and economic realities," he 
said. 
     William English, senior vice president for legal and 
governmental affairs for Satellite Business Systems, also 
urged local operating companies to offer more 
sophisticated services. 
 
WHILE BELLCORE DISCUSSES ITS PLANS FOR THE FUTURE 
 
     Seemingly in anticipation of warnings to the BOCs by 
interexchange providers about the need to provide 
sophisticated digital services, Bell Communications 
Research, the research labs jointly owned by the 7
regional Bell holding companies, earlier gave an overview 
of its efforts in the integrated services digital network 
(ISDN) arena. 
     James Ehlinger, division manager of data services
planning at BellCore, gave a clear indication that
BellCore will support CCITT standards for ISDN services.
He listed as the company's objectives in establishing ISDN
parameters digital connectivity; integrated access of 
various services, including voice, data, images and text; 
a limited number of standard interfaces; separate channel 
digitized signaling; and a new service framework, 
encompassing de facto standards and examples of new 
service capabilities. 
     Walter Johnston, from Nynex's technical planning 
office, said 75-80% of all Bell local loops can currently 
handle basic ISDN functions, operating at 144 Kbps over 
their embedded lines.  He added that local telco revenues 
are shifting from basic phone service to more specialized 
services and increased digital services, although digital 
lines are currently being installed mainly to meet voice, 
rather than data, demands.
     Johnston noted that Nynex's rollout date for an ISDN 
interface probably would not be until 1988 or 1989; but 
Ehlinger said in a week or two other unnamed RHCs will
announce dates for ISDN interfaces somewhat earlier than
Nynex.
     In the future, Johnston said, service competitors
will be interexchange companies, customers who will be
building their own private networks, and "pure resellers" 
such as shared services and teleports.
 
********
BUSINESS
********
 
SBS, NEC SIGN FOR JOINT DTS LINK
 
     Satellite Business Systems (SBS) and Nippon Electric 
Corp. (NEC) have signed a contract to link their
teleconference facilities via NEC's DTS radio system, 
using its local distribution radio (LDR) technology.
     The interconnect will link the NEC Radio & 
Transmission Division's teleconference room in Fairfax, 
Va., to teleconference rooms on the SBS national network, 
originating in McLean, Va.  Transmission will be
full-duplex digital at l.544 Mbps, and will have the
capability for dual motion channel, single image and still
image transmission. 
     Installation of the 5-mile DTS link connecting both
companies' division headquarters was completed in December
l984 and was undergoing final testing last month.  An NEC 
spokesman told us the system would be used primarily to 
demonstrate the firm's line of microwave, satellite,
carrier transmission and optical fiber products to
customers via the SBS teleconference link.
     Future plans could also include connections with 
other NEC locations in the United States for data and 
teleconference links.  (NEC America Inc., Radio 
Transmission Division, 2740 Prosperity Ave., Fairfax, VA
2203l, 703/698-5540). 
 
MICOM ACQUIRES INTERLAN 
 
     Micom Systems Inc. last month announced an agreement 
to acquire Interlan Inc. for l.75 million shares of Micom 
stock.  The move extends Micom's activity in the rapidly
growing local area network (LAN) business.
     While the deal is expected to be completed around
March l, the acquisition plan is subject to the average 
market price of Micom's stock and approval by shareholders
of privately held  Interlan.
     Interlan has been one of the major suppliers of the
Ethernet local area network products developed by Xerox,
supplying complete systems to end users, as well as 
Ethernet subsystems to original equipment manufacturers 
(OEMs) and system integrators.
     The company's Net-Plus LAN system offers multivendor 
compatibility for high-speed file transfers between 
Digital Equipment Corp. VAX computers, UNIX-based 
workstations and IBM personal computers.
     Under terms of the takeover, Interlan will continue
to operate as a wholly owned subsidiary, reporting to 
Micom's office of the president.  The Micom and Interlan
sales organizations will be combined to add a direct sales
and support layer to Micom's existing manufacturer's
representative and distributive services. 
     Micom's move adds the Interlan line of cable-based 
products--with sales of $l8 million in l984--to the 
former's line of Instanet Micro600 data PBXs.  Instanet 
product sales accounted for more than $50 million of
Micom's $l70 million in revenues last year. 
     "Micom expects to be the first company to offer a
local network approach which integrates data PBX and
cable-based LAN technology in a single local network
system offering," Micom President William Norred said.
     Micom's LAN strategy, according to Norred, is to 
bring together the high-speed data transfer capability of 
cable-based LAN products and PBX technology offering local
network connections for interactive terminals to access 
multiple host computers.
     While customized versions of integrated Ethernet LAN 
technology with data PBXs exist, the expanding use of 
personal computers and communicating terminals is fueling 
a convergence of the 2 technologies through integrated
offerings like the one planned by Micom.  (Micom Systems
Inc., 805/583-8600.)
 
ERICSSON SECURES $9 MILLION IN CONTRACTS FOR FIBER OPTIC
EQUIPMENT 
 
     Three units of Ericsson Inc.--Ericsson Network 
Systems, Ericsson Network Projects Inc. and Ericsson
Lightwave Cable--have received contracts totaling $9
million for optical transmission equipment, installation
services and cable from St. Louis-based LDX Net Inc.
     Ericsson Network Systems will supply and install a 
high-speed optical fiber transmission system and
maintenance system for LDX Net, which is building a 
540-mile fiber optic network to link Dallas and Houston.
     Meanwhile, Ericsson Network Projects' contract with
LDX covers the provision of splicing and characterization 
services on the fiber cable that is being used for the
Texas network.  And Ericsson Lightwave Cable's $3.5 
million contract includes single-mode fiber optic cable 
for the LDX system. 
     The Dallas-Houston link, slated for completion in
April, is the first phase of a l,700-mile network that LDX
will construct to connect St. Louis and other Midwest 
cities served by the company with Texas and the Gulf
Coast.
     The equipment Ericsson will install for LDX includes 
Ericsson's 565 Mbps fiber optic system, with capacity for 
over 8,000 telephone voice channels.  Other equipment 
included in the contracts is Ericsson's digital 
multiplexers, channel banks and transmission maintenance
system. 
     Regional carrier LDX began laying cable in September 
along rights-of-way leased in Texas and Louisiana.  The 
rights-of-way travel east from Dallas to Shreveport, La., 
south through Western Louisiana, re-entering Texas at 
Beaumont/Port Arthur, and entering Houston from the east. 
     Greenwich, Conn.-based Ericsson Inc. is jointly owned
by LM Ericsson of Sweden and Atlantic Richfield Co. of Los
Angeles.  (Ericsson Communications, Transmission Systems, 
PO Box 938, Garden Grove, CA 92642, 7l4/895-3962.)
 
ALCOA/FUJIKURA IN FIBER OPTIC VENTURE 
 
     Alcoa Conductor Products Co. (ACPC) and Fujikura Ltd.
of Japan have formed a joint venture to develop advanced
power transmission and telecommunications equipment for 
fiber optics.  The 2 new subsidiary companies will have a 
total investment value of $15-20 million. 
     The joint venture, Alcoa Fujikura Ltd., will be
located in Spartanburg, S.C.  The new facility will also
house Alcoa's electrical transmission accessories 
business, currently based in Pittsburgh.  Fujikura will be
a minority partner in the transmission accessories
unit--Alcoa Conductor Accessories Inc.
     The new venture is part of Alcoa's business expansion
plans, to move into the high-technology growth fields such
as fiber optic communications.  ACPC is already a 
worldwide supplier of aluminum conductor and accessories
to the electrical industry.  (Aluminum Company of America,
l50l Alcoa Bldg., Pittsburgh, PA l52l9, 4l2/553-3993.)
 
EQUATORIAL ADDS ll GALAXY TRANSPONDERS
 
     In a move that effectively doubles its transponder 
capacity, Equatorial Communications has reached an
agreement in principle with Hughes Communications Galaxy
Inc. to purchase ll transponders on the Hughes' Galaxy 3
satellite.
     In addition to the ll transponders, Hughes will also 
provide Equatorial access to capacity on its terrestrial
network, which includes earth stations and terrestrial
microwave facilities in New York, Los Angeles, San
Francisco, Atlanta, Dallas and Chicago. 
     Equatorial will use its total of l2 Galaxy 3 
transponders and Hughes' terrestrial network facilities to
expand currently available capacity, and to provide 
additional services for what the firm characterizes as a
"rapidly growing customer base."
     Equatorial is already using its existing transponder 
capacity on Galaxy 3 for its point-to-multipoint and
interactive data communications services for private
network links nationwide.  "The growing demand for network
services necessitated this bulk transponder purchase in 
order to satisfy Equatorial's near-term capacity needs,"
according to a company statement. 
     Indeed, the firm says the consolidation of 
terrrestrial links and the addition of more transponder 
space should mean lower costs for the customer. 
Meanwhile, Equatorial still has options to provide its own
transmission system, given the company's pending
applications at the FCC for Equastar--its planned C-band
domestic, 2-satellite system to be launched in l988.
     Along with the Galaxy transponder capacity,
Equatorial intends to retain its 4 transponders on the
Westar 4, with approximatley 20,000 customers currently 
residing on the system via Equatorial's 2-foot micro earth
station units.  (Equatorial Communications Co., 300 
Ferguson Drive, Mountain View, CA  94043, 4l5/969-9500.)
 
**********************
BACK PAGE NEWS--UPDATE
**********************
 
HOUSE SUBCOMMITTEE WORKING UP LIFELINE LEGISLATION
 
     Spearheaded by Rep. Mickey Leland (D-Texas), the 
House Energy and Commerce Subcommittee on 
Telecommunications went public last month with a proposed 
measure designed to protect the poor, elderly and 
handicapped from rate increases brought on by divestiture 
and to ensure that the universal service concept is 
preserved for residential users.
     The Lifeline Telephone Services Act of l985 defines
universal service as basic service intended to include a
limited number of calls in a consumer's local exchange
area, with an additional charge per call for extra calls. 
     However, lifeline service, according to the measure, 
could not include what is commonly called measured or 
budget service, where telephone charges are based on the
number, distance and duration of time spent on telephone
person's principal residence. 
     Although the measure does not address the emergence
in some areas of local measured service, the bill's 
sponsors would oppose such charges under a universal
service concept, but would compromise on allowing 
flexibility on the number of calls by residential users.
 
BILL WOULD GIVE STATE PUCS AUTHORITY ON LIFELINE
RATES/SURCHARGE 
 
     The bill would require state public utility
commissions to establish special lifeline rates--to 
provide local telephone service at a discounted rate for
low-income residential customers. 
     Under the measure, state regulatory agencies also
would be given the flexibility to develop rates and 
eligibility requirements.  In assessing those 
requirements, however, the states would be directed to pay
particular attention to those most in need of 
assistance--the elderly, the poor, the handicapped and the
unemployed, say the measure's sponsors. 
     In addition, the legislation would make all qualified
local telephone companies that provide lifeline telephone 
service eligible for payments from a lifeline service fund
to defray the cost of the service.  The measure's 
supporters on the committee have set that figure at 
$400,000 initially.  A qualified local telephone company
would receive compensation from the fund equal to 50% of
the difference between the rate for lifeline service and
the cost of providing such service. 
     The fund would be derived from a small surcharge on
interstate long-distance telephone service.  However, the 
measure does not specifically say who would administer the
fund, nor exactly how much the fee would be on
long-distance service, but the measure's supporters are 
probably looking for more than the 50 cents suggested by
the FCC.
     "We are in the midst of a dramatic change in the 
telecommunications industry and the way the industry
responds to the needs of the marketplace.  These changes, 
in all likelihood, will significantly affect the cost of
telephone service to residential customers," bill 
cosponsor Leland said.
      The fate of HR l5l at this point hinges on how far
Subcommitte Chairman Timothy Wirth (D-Colo.) is willing to
let it go.  If nothing else, the measure is another 
indication to the FCC on where lawmakers think regulators 
should go with deregulation of the telephone industry.
The proposed legislation comes after the House Small
Business Subcommittee's telephone task force denounced the
FCC's access charge plan on small business users (DBR,
January, p. 2). 
 


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