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How Far Will U.S. Regulators Bend to AT&T and Verizon?

Henry Lancaster

Recent events relating to the network plans of AT&T and Verizon are extraordinary: it appears that the commercial and lobbying clout of two major telcos is determining the telecom services which their customers can receive, the technology they will receive them with, and whether they will receive them at all. Already a large number of states have agreed to dismantle Carrier of Last Resort (COLR) obligations on them, while the FCC itself is being advised to change the rules to suit the business interest of the telcos. From a European perspective, where Universal Service Obligations regarding fixed-line telephony as well as fixed-line broadband as sacrosanct, the dismantling of the US's copper network without sufficient safeguards for 'the people' is putting the interest of Big Business before that of the consumer.

Verizon

Verizon in early 2012 announced that it would stop selling DSL services in areas where FiOS was available. In recent quarters, and apparently without concern, the company has been losing DSL and voice customers while adding FiOS TV and FiOS broadband customers. The company is strategically moving away from DSL (it has stopped selling DSL as a standalone product, obliging potential customers to buy a bundled package), by encouraging customers to move to LTE or (by not upgrading its DSL network) to churn to competing cable operators. This policy could affect up to 40% of its existing customer base. The loss of DSL customers is considered acceptable since the potential revenue from LTE (cheaper to deploy than upgrading DSL) and its FiOS service will outweigh the capital outlay in maintaining its copper network, which provides diminishing revenue.

The churn of customers to cablecos is also not considered a business loss, since Verizon has a $3.8 billion spectrum sharing and marketing deal with Comcast, the largest cableco, by which Comcast provides broadband services and Verizon LTE services. LTE is traditionally priced higher than DSL, so ARPU would be expected to rise. Furthermore, since regulatory oversight has been eroded in so many states, where DSL has been removed and LTE is unavailable or patchy customers have no recourse but to accept the new status quo.

AT&T

AT&T is pursuing a similar policy of scrapping copper for an incomplete FttN network, leaving many customers with a poor replacement, or none at all. The company's recent announcement to invest $14 billion into its LTE and IP-based fibre network (U-verse) over three years (dubbed Project VIP) will extend LTE coverage to 300 million Americans by the end of 2014 and provide up to 75Mb/s data speed on its U-verse network. Currently, 9% of AT&T's landline customers cannot access broadband while 27% are served with legacy broadband (non-IP DSL). It is expected that the remaining 25% of customers will be connected through LTE, though the latter is much more expensive for customers and has far lower data caps than do DSL deals. As with Verizon, AT&T is switching to IP and looking to decommission its copper network.

From a commercial perspective, AT&T's move to IP will eliminate the cost of maintaining a separate copper network alongside its IP and LTE infrastructure, though it is deluded into believing, or having others believe, that LTE (which will not have universal coverage anyway), can serve as a viable replacement for fixed-line broadband in rural regions. The move presents a number of potential regulatory hurdles, as well as inconveniences for customers and other operators which currently rely on AT&T's infrastructure.

Regulators and lobbying

As a result of lobbying efforts, Verizon and AT&T have managed to have their COLR status removed in a number of states: as a COLR the operators were legally bound to provide phone connectivity to all premises in their marketable areas. This change has generally been undertaken on a state rather than federal level, and as such the FCC has largely stood aside.

Yet now AT&T is targeting the FCC directly. Taking advantage of brownie points gained from the FCC for its $14 billion investment announcement, AT&T is hoping that the FCC will remove regulations and obligations on its telecoms network when it becomes IP-based. It is arguing that services such as VoIP (provided as a bundled package) are part of the non-regulated internet market rather than the regulated telecoms market.

These incumbent providers are currently required to offer access at regulated rates to their last-mile infrastructure to other telcos. If as part of its push to extend LTE into rural areas while pulling out copper AT&T shuts down rural phone lines used by CLECs to provide DSL and phone services, those CLECs will have no viable business case, and will go under. It is unlikely that there will be a business case for other players to enter the market, and as result customers in many areas will have to take up LTE for broadband and phone services, and in some areas go without either.

Although investment in telecom infrastructure is to be encouraged, unless the FCC can see through AT&T's proposals for what they are (business and shareholder profit overriding universal telecom provision), it will surely become the cart pushed by the horse. Reinstating universal obligations down the track will be a hard prospect.

By Henry Lancaster, Senior Analysts at Paul Budde Communication. Henry is also a contributor of the Paul Budde Communication blog located here.

Related topics: Access Providers, Broadband, Policy & Regulation, Telecom

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Comments

The FCC could address COLR issues by Frank Bulk  –  Nov 15, 2012 8:14 AM PDT

The FCC could address COLR issues by requiring AT&T;to provide all customers within their exchange reliable dial tone (regardless of medium) at rates comparable to others who provide traditional dial tone. 

This doesn't address any broadband performance or caps, but that appears to be outside the purview of the FCC, despite their stated policy goals.  If these customers don't have broadband today, they're not out much.  Just don't let them lose what they already have, dial tone.

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