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AT&T: Basic Telephone Service In Death Spiral – Deregulate Us For 21st Century Upgrade

Phillip Dampier January 5, 2010 AT&T, Editorial & Site News, Public Policy & Gov't, Rural Broadband 5 Comments

Phillip Dampier

In a remarkable statement to the Federal Communications Commission in Washington, AT&T has joined Verizon in predicting the imminent demise of Ma Bell’s classic telephone network.

AT&T writes in its 30 page comment, “That transition is underway already: with each passing day, more and more communications services migrate to broadband and Internet Protocol (IP)-based services, leaving the public switched telephone network (“PSTN”) and plain-old telephone service (“POTS”) as relics of a by-gone era.”

AT&T claims abandoning the old legacy phone network would help the company devote its full resources into staying relevant by constructing a broadband, IP-based network that would deliver voice, data, and video to consumers, presumably over its U-verse platform.  That, according to AT&T, could help the company achieve universal broadband coverage in its service areas, but only if investment-friendly regulations are supported by Washington policymakers.

The Commission has been charged by Congress with formulating a National Broadband Plan that will result in broadband availability for 100% of the United States. That auspicious goal is within reach, but [...] will not be met in a timely or efficient manner if providers are forced to continue to invest in and to maintain two networks. Broadband is dramatically changing the way Americans live, work, obtain health care, and interact with the government. Congress and the Commission have rightly made universal broadband access a core national priority. But achieving this goal will take an enormous investment of capital. Private investment from network operators has brought broadband access to over 90% of Americans, and these operators will continue to play a pivotal role in bringing broadband to the remaining 8-10% of citizens who do not currently have broadband access. It is accordingly crucial that the Commission pursue forward-looking regulatory policies that remove disincentives to private investment and encourage operators to extend broadband to unserved areas.

While broadband usage – and the importance of broadband to Americans’ lives – is growing every day, the business model for legacy phone services is in a death spiral. Revenues from POTS are plummeting as customers cut their landlines in favor of the convenience and advanced features of wireless and VoIP services. At the same time, due to the high fixed costs of providing POTS, every customer who abandons this service raises the average cost-per-line to serve the remaining customers. With an outdated product, falling revenues, and rising costs, the POTS business is unsustainable for the long run.

AT&T cites a growing number of Americans cutting their wired phone line service — 22% according to the National Center for Health Statistics.  Craig Moffett from Bernstein Research pegs it closer to 25%, with an additional 700,000 phone lines being disconnected every month.  With a shrinking customer base, the viability of companies providing only wired phone service has come into question.  Verizon and AT&T, the nation’s largest phone companies, have made the judgment it’s a dying business.  Conversely, Frontier Communications and a few other independent phone companies remain believers in rural copper wire phone networks, and are willing to buy the discarded, mostly rural regions their bigger counterparts can’t wait to exit.

But AT&T’s advocacy for an end to “plain old telephone service” is just a tad self-serving when one explores their “To-Do” list for Washington regulatory agencies and lawmakers.  AT&T suggests their future plan benefits all Americans.  Critics would contend it mostly benefits AT&T and its shareholders, especially in light of AT&T’s future revenues being directly impacted by customers disconnecting their AT&T phone lines.  AT&T themselves note collective industry revenue for basic phone service fell from $178.6 billion in 2000 to $130.8 billion in 2007, a 27% decrease.

AT&T’s Action Plan to Avoid Obsolescence Explored

AT&T's U-verse system represents AT&T's broadband-based network

At the heart of AT&T’s proposal for 21st century telephone service is an end to analog telephone service, designed more than 100 years ago to carry voice calls, and the launch of broadband-based service to every home in their service area.  From this new platform, AT&T can deliver telephone, television, and Internet service over a single network.  In fact, they already do in several cities where AT&T’s U-verse has launched. Instead of getting one revenue stream from basic phone service, AT&T can now earn from any number of services a broadband platform can support.

AT&T compares their plan with the transition from analog to digital television, except you won’t have to trade in your existing phones or attach converter boxes to every telephone in the house.  Just like the switch to digital television, AT&T wants a date certain to pull the plug on Ma Bell’s old phone network, the sooner the better.

But AT&T’s plan has plenty of strings attached.

First, the company believes the only path to private investment and a successful transition is a near-complete deregulation of the telephone industry.  It wants the federal government, specifically the FCC, to take control of oversight of phone companies across America, if only to end a patchwork of state regulations and service requirements.  Remember, the Ma Bell most Americans grew up with was a regulated monopoly.  In return for guaranteed profits, phone companies agreed to meet service obligations, provide service to any home or business that wanted it, serve the disabled, and provide discounted phone service to the economically disadvantaged.  Rural customers were assured they would have access to phone service and at reasonable prices, and if something stopped working, government oversight ensured problems would be repaired to the customer’s satisfaction.

In AT&T’s view, such requirements are quaint and outdated, and it wants to bear few of those burdens going forward.  Indeed, in a too-cute-by-half aside, the company argues that since it will design the network to operate under the same protocol the unregulated Internet uses, it should be unregulated as well.

Such deregulation could impact a myriad of policies governing phone service that most Americans take for granted — minimum service standards, requirements that telephone companies complete calls between one another – even if competitors, and reasonably priced basic phone service even in the most remote locations.  But AT&T is asking for even more – a comprehensive review and possible elimination of any regulation that could be interpreted as interfering with the transition to an all-broadband telephone network.  AT&T includes everything but the kitchen sink in this category, ranging from service quality requirements, reporting, recordkeeping, data collection, accounting, and depreciation and amortization rules governing how quickly the company can write off obsolete equipment.

Ma Bell's network is due for a retirement, advocates AT&T

Ironically, AT&T wants deregulation -and- access to public taxpayer dollars to construct their new network.  The company advocates government-funded award programs to promote universal broadband access.  One would provide money for wired broadband service, perfect for companies like AT&T that want to build those networks, and another for wireless mobile projects to expand service into unserved or underserved areas, also perfect for AT&T Mobility — the same wireless carrier slammed by Verizon Wireless for largely ignoring rural America with 3G wireless data upgrades.

While there is some justification for a review of federal and state rules that may no longer realistically apply to today’s telecommunications marketplace, AT&T goes out of its way to be self-serving in its recommendations.  It dangles the bright and shiny object of a 21st century broadband-based telephone network, but only if they get to run it essentially “no questions asked,” with little oversight and an infusion of public taxpayer dollars to compliment private investment.

AT&T may be correct that the days for Ma Bell’s “plain old telephone service” are indeed numbered.  But for a company that earns billions in profits and answers to shareholders demanding maximum return, shouldn’t their long term well-being first be a question between AT&T management and shareholders?  Are they incapable of a private course correction that makes their future relevance more secure?  AT&T’s U-verse did not require public tax dollars to be successful, and the company spent generously on lobbyists and astroturf campaigns to smooth the way forward with “statewide franchising,” bypassing local government oversight.

The real question on the table is how far does the Obama Administration and the FCC want to go to achieve universal broadband?  AT&T suggests that only massive deregulation will entice private investors to step up and make the investments required to help achieve whatever definition of “universal broadband” the Commission comes up with.  But that price is way too high to pay.  AT&T answers first and always to its shareholders.  If they want public tax dollars funding, even in part, their transition to an all-broadband future, they must also answer to the other “stockholders,” namely the American people helping to foot the bill.


Currently there are 5 comments on this Article:

  1. Ian L says:

    Couldn’t agree more with your points. The big issue here is of what AT&T would do with areas too far out for U-Verse (a wire-mile from the VRAD). I have a feeling that, if deregulation was allowed and universal service constraints scrapped, AT&T would sell those lines to the highest bidder or get rid of them outright. That or request massive amounts of cash to pad buildout costs so they can make a one-year profit on any new installations.

    For those of us who live in areas where a 5000 foot VRAD radius would only cover a dozen customers, everyone would have to switch to cellular, though nowadays you can get unlimited local, long distance, etc. for $50 per month via Net10 unlimited on AT&T’s network, provided you select from a handful of phones. Then again, when you’re replacing a landline it’s not like you need a smartphone anyway.

    I actually agree that telephone service can be price-deregulated for monthly charges…as long as prices are uniform across an urban-rural geographic swath…and as long as there are at least three distinct providers (for example the hometown cellular provider, the ILEC and Sprint or T-Mobile) competing for your buck. Competition on the wireless side hasn’t brought us dirt-cheap data yet, but at least on some networks we have solid voice capability that works in the vast majority of the US and can be had unlimited for $40-$50 per month (Page Plus Cellular or Straight Talk for Verizon, Virgin Mobile or Boost Mobile for Sprint, Net10 Unlimited for AT&T and Even More Plus from T-Mobile, plus a double-handful of area-limited local-carrier plans).

    That said, if you can’t get cellular service at your location chances are you can’t get decent broadband either, and those are the areas that still need $20-per-month limited use (or more expensive for more features) landlines…yet those same areas would be the ones dropped by a newly-deregulated AT&T. Not so hot.

    As an aside, I had a fun chat with a CLEC sales manager for a telephone cooperative who will be overbuilding fiber into our area. He said outright that, while the cooperative would have liked to have bought (at a fair price) the ILEC properties in its overbuild markets, by being a CLEC they don’t need to touch expensive far-out customers, and that saves a lot of money. That said, cooperatives tend to not have a problem pushing phone service to the utmost corners of rural America because they don’t have stockholders playing the “Are you making me money now? How about now?” game.

  2. Tim says:

    Didn’t AT&T and other teleco’s get breaks and guaranteed revenue already from taxpayers for wiring most of the US for broadband? I read they have fleeced 250 billion from taxpayers already, not come through on their promises, and they want more? I don’t know about you guys but enough is enough.

    • BrionS says:

      I believe you’re talking about the Universal Service Fee (USF) required by the government on every line that was intended to be redistributed to providers to enable them to build out their networks into under-serviced and non-serviced areas (rural areas primarily).

      Unfortunately the wording of the USF law was not very pointed and very little of that money made it’s way back to new lines in rural areas – it just went to pad the pockets of the telcos.

      I seem to recall some rumblings in recent years about repealing the USF in favor of new legislation which would be much more specific about how the collected funds could be used. Maybe Phillip knows more.

      • Tim says:

        I was actually meaning what Jason was saying but I didn’t know about the USF either so it just adds even more insult to injury to the taxpayer.

  3. Jason says:

    I do believe AT&T if not others were the recipient of those public funds quite awhile back to help with building out their internet network and all they’ve ever been doing since then is squeezing consumers (tax payers) for more money with price increases, decreasing service quality, and only competing where they absolutely had to in large urban areas.

    They simply haven’t earned the public trust, they shouldn’t get any more tax payer money until they do – or they commit and are held to offering equal access to all americans to high-speed data via fiber.

    If they want to continue cherry picking customers and markets they can do that with their own obcene profits that they seem to refuse to re-invest into their infrastructure without crying about bandwidth usage.

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