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November 18, 2008

No More Landlines - Discussion

"Don't hold your breath," says Ted Wallingford in his post replying to my assertion that there won't be any more copper landlines by the end of Obama's first term as President. Ted continues:

"I can easily counterpredict that there will be plenty of landlines left in the country by the end of Obama's term, and if he goes eight years, there will still be plenty of good old copper dial tone…

"There are several more reasons why.  First, reliable and abundant FAX-over-IP is still a dream that hasn't been standardized to the point where consumers have a consistent manner in which to use it.  So those pesky FAX lines will be with us for some time.  Second, digital last mile services like PRI are still too expensive for the majority of subscribers, even medium-sized business with 6 - 8 phone lines, in many cases. Third, lots of monitoring equipment, like that used by fire and security systems, still requires the use of copper dial-tone because its modems are too sensitive to the use of jittery VoIP…"

Everything that Ted says in the second paragraph is true; but IMHO his counter-prediction is dead wrong. However, I don't think I was clear enough in my initial post on why copper-based POTS (Plain Old Telephone Service) will be gone before January of 2013 (to be honest, I once predicted it would be gone by the end of 2010 – now I'm hedging my bet a little).

Copper-POTS won't disappear because the last user voluntarily stopped faxing. People still will have alarm systems that they'll want to connect via copper because they weren't built with IP technology in mind. Plenty of people would be happy continuing to make their voice calls over copper pairs; worse, people in some parts of the country still may not have either good Internet access or cellphone coverage so they won't even have a ready substitute for POTS. That makes it all the more serious that copper-POTS won't be available then.

The reason copper-POTS will disappear is simple. Use of POTS landlines are declining. Worse, the most lucrative voice customers are the first to drop their landlines in favor of VoIP (often from cable companies) or just simply to do their calling and receive their calls on their mobile phones. This paragraph from at&t's last quarterly report is telling:

"AT&T's third-quarter wireline voice revenues, which include retail local voice and long distance as well as wholesale voice, totaled $9.5 billion, representing a decline of 8.1 percent versus results for the third quarter of 2007. These results continue trends in recent quarters, reflecting the industrywide migration of voice usage from wired to wireless platforms, customer transitions to broadband and VoIP services and increased local voice competition."

Verizon reports that it lost over 2.5 MILLION access lines in the last year, over a million of which were primary residence lines. Verizon is gaining FiOS (fiber) customers but at the expense of its copper network.

These losses of copper-POTS revenue may accelerate as the economy turns down. Strapped consumers at this point are more likely to give up their landlines than their cellphones. But the cost of maintaining the copper network WON'T go down nearly as fast as the revenue which supports it. Each span of the aging copper network must be repaired each time it fails or is tree-crushed even if very few of the pairs in the network are producing revenue. There are lots of tree-prone miles out there.

Within a year or two medium-sized phone companies (there are some) may well not be able to pay to keep the copper running. Small rural companies will need larger and larger subsidies to replace the lost revenue. Verizon and at&t will announce that they too must have huge subsidies in order to keep their copper networks running for the few remaining users; they will say that they can't continue to subsidize this legacy service with their revenue from wireless and fiber – particularly as prices for those two services begin to decline.

From a public policy view we can do nothing and then pay larger and larger subsidies for the few remaining copper customers – who will be real people in real need. Or we can assure now that either cellular or broadband service – preferably both – is available everywhere POTS service is now available BEFORE the copper network becomes financially unviable. We can invest private and public money in preparing for the future or we can waste public money in subsidizing the past.

Reader Bill is a pessimist. He comments that the subsidies will keep copper alive. I'm an optimist; I think we'll future-proof. Oh yeah, IP converters for alarm systems'll cost about $10 then and everyone'll have learned to scan and email rather than faxing. More important, people everywhere in the country will have an affordable alternative to POTS.

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