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Telephone services are on the verge of an upheaval like none seen before, and whether they ultimately become increasingly innovative and economic or stifled and above-cost will hinge on decisions reached by policy-makers in Washington over the next year or two.
With POTS (plain old telephone service) now viewed as a commodity, long-distance carriers are dropping the unprofitable consumer market, and they, as well as the RBOCs (Regional Bell Operating Companies), are looking to the business market as the profit center of the future. Businesses are migrating to lower-cost, higher-feature IP voice services, ranging from dedicated, managed enterprise offerings, such as Sprint Corp.s IP-Enablement system, to Internet-based offerings for small offices, such as Vonage Holdings Corp.s service.
The relative affordability of new IP-based services depends, in some cases, on providers ability to get through the last mile of the network, which is controlled by the RBOCs and other Incumbent Local Exchange Carriers. It also depends on not having to pay into the Byzantine funding pools that support the traditional phone system. These variables will be at the center of the debate in the next two years over how to reform the regulatory regime.
By all accounts, the incumbent local telephone companies, which are the stewards of the legacy PSTN (public switched telephone network), will face the challenges of 21st century telecommunications one way or another, but they prefer to not be rushed into anything by pressure from upstart rivals. The rapid pace of innovation and price reduction in recent years shows that competitive pressures unleashed by the promise of the 1996 Telecommunications Act have spurred the incumbents to move faster than they otherwise would.
The RBOCs have been chipping away for years at the regulations that govern their rates and obligations and have succeeded in eliminating many. The Federal Communications Commission voted last month to further reduce their duty to offer rivals access to last-mile facilities. FCC Chairman Michael Powell said that the regulatory relief would promote the incumbents investment in broadband equipment and eventually pit the telephone companies against the cable companies for voice, data and video.
Ominous Precedent
However, in voting against the decision, FCC Commissioner Michael Copps said that it “constitutes an ominous precedent for the small-business community” and that it doesnt “bode well for independent providers of VOIP [voice over IP] services. Monopoly control of the last mile created all kinds of problems for basic telephone service in the last century, and now we seem bent on replicating that sad story for advanced services in the digital age.”
Over the next two years, the RBOCs goal is to convince policy-makers that the existence of budding technologies and applications demonstrates a competitive marketplace and a reason to eliminate the rules requiring them to share networks with rivals.
“The difference today is that competition is here,” said Herschel Abbott, vice president of governmental affairs at BellSouth Corp., in Atlanta. “Were losing lines. But … regulation keeps us from making investments we would otherwise make.”
Some say that the RBOCs are crying wolf, that deregulation is no guarantee that the rate of investment will rise and that network upgrades will continue to take place at a steady pace, with or without deregulation of the local facilities.
“They are investing,” Greg Douglass, vice president at Cap Gemini Telecom Media and Networks U.S. Inc., in Irving, Texas, said about the RBOCs strategy. “They will be packet[-based] in 15 years, come hell or high water.”
One factor that regulators and lawmakers will consider next year is that the telephone companies have won a lobbying ally in the cable industry. The industries have teamed to convince policy-makers that they are peers in building new high-speed broadband networks but are besieged by newcomers eager to poach their investments.
At the RBOCs annual gathering this fall, Brian Roberts, president and CEO of the largest cable company, Comcast Cable Communications Inc., assured telephone companies of the new partnership. “All of us who invest in competitive facilities need to stand together … and we need to get our public officials to understand why its bad policy,” Roberts said.
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