Telecom Professional

Comm Forecast No. 1: No More Landlines

The author makes some good points and some of what he says will undoubtedly happen, but he is missing some underlying facts. First, DSL is currently subsidized by POTS, but only if both services are delivered over the same local loop. (copper or fiber) In rural areas, that cost can be $20-50 per month. Some of that cost is embedded in local service rates and some is USF.

He also conveniently didn't account for the cost of providing service in some areas. Those rural carriers who "like their subsidies" are required by law to provide service to anyone in their area at the same rate. I work for a company who recently spent $50,000 to deliver service to 3 homes with the future possibility of only one more home ever. We are the carrier of last resort and have to provide that service. We could not do it without USF. By the way, no competitor either wireless or cable was willing to provide service to this area. We have as a people decided that it is in our national interest for everyone to have access to phone service at just, reasonable, and affordable rates.

Those facts aside, the author made some good points. As competition begins to serve customers in centralized locations, i.e., where cable TV already exists, the traditional company will lose customers. They started out with 100% of the market, so there was nowhere to go but down. I'm told that nationally, 18% of the population does not have a land line phone. That means copper, fiber, or cable. Some costs are no dependant on how many customers buy service. Losing the low cost lines will drive up the average for all the customers who remain with the land line company.

The solution of letting the poor customers take their subsidy and spend it with whomever they want has some problems. First, there is stranded investment. The traditional phone company made a deal with the government via the regulators. They built the network and were guaranteed a fair return on their investment. We can argue about what's fair, but if a company spent the money to serve the public interest with a promise of profit, the least they deserve is to get their money back. By the way, the rural guys typically have broadband available at $40 or less to 95%+ of their customers. Those numbers don't hold out for companies like Verizon, Windstream, Embarq, and AT&T.

The bottom line is that it's not nearly as simple as the author indicates.