AT&T has long since been associated with telephones, and thus it may come as a bit of a surprise that the telecom giant wrote a letter to the FCC asking for permission to phase out their analog landline service. In the letter, AT&T refers to POTS (plain old telephone service) and PSTN (public switched telephone network) as “relics of a by gone era” and it is easy to understand why; Digital telephone service is almost assuredly the way of the future. AT&T already offers digital telephone service in many areas, as well as a highly-integrated digital telephone service that it bundles with its U-verse system. This certainly begs several questions.
The first of which is, what does AT&T plan to do? Obviously AT&T has no interest in abandoning droves of loyal consumers, as the market is far too competitive to pass up monthly revenues from millions of customers. It would seem likely that AT&T would be compelled to offer digital telephone service to these same businesses, households, and organizations at a comparable rate, but what does that change mean for AT&T? What does it mean for consumers? These are all very good questions.
Change is Good for AT&T
Anyone who has ever owned an older car for any length of time has probably learned two things: 1) older cars break down more frequently as they age and 2) finding parts for older cars becomes more difficult and expensive over time. This is a fitting analogy for AT&T’s investment in older analog devices that service PTSNs. Additionally, finding personnel capable of managing these aging systems is becoming harder, thus driving up the premium that AT&T has to pay for their services. In short, maintaining and connecting two separate networks, one based on digital packet switching technologies and the other a PTSN, is a very expensive proposition that also comes with a handful of serious technical limitations.
Adding to AT&T’s network woes, the U.S. Congress has set a goal of universal broadband access, which is very difficult for telecom giants to provide because of technical restrictions that arise from mixing digital and analog technologies. The size and age of AT&T’s network certainly works against it in this regard. Many consumers who have signed up for DSL services know that wiring plays a major role in determining which, if any, DSL services are available at a given location. While telecoms have made massive improvements in DSL availability in the last decade, the fact is that not all areas can be serviced in a cost-effect manner. While it is easy to grumble and moan about how much money telecoms make, they are publicly traded companies with an obligation to their shareholders to behave in a fiscally responsible manner. This fiscal responsibility remains a primary concern even if it means that they forsake low-income areas and/or regions with low population densities. After all, it is only pertinent to wonder when will their initial investment be returned to the company and shareholders in such a situation.
It is also worth noting that profits from POTS have been declining steadily since the start of the new millennium. In 2000, POTS systems in America generated a staggering $178.6 billion in total revenue, but only managed to eek out $130.8 billion in 2007. Factoring in depreciation of the U.S. Dollar, that is underwhelming. Of course, AT&T would probably be able to offer its U-verse service to countless new consumers, and that would certainly help improve their bottom line despite their renewed emphasis on their wireless services over their other offerings.
When AT&T Wins, Consumers Win Too
On the other hand, what would happen if AT&T were to go digital across the board? The first thing that would probably happen is that AT&T would be freed from having to maintain analog/digital bridges and components and rely on a 100% digital network. This has many advantages, including greater DSL penetration at lower prices o AT&T. Lower prices means that AT&T would be able to extend service to new portions of existing markets at a rate hat is far more reasonable. The net result is greater broadband penetration, which is always a good thing, and possibly more consumers being able to access new services such as AT&T’s U-verse.
Broadband access is critically important to the future of America in much the same way that computers were only a generation ago. Falling further behind in the broadband race is simply not an option, but AT&T is essentially stuck between a rock and the proverbial hard place. If the FCC approves AT&T’s request, then the telecom giant will have to invest a fair sum of money upgrading its network almost immediately. This could spur temporary job growth, which might be ideally timed given the economy crisis that grips America at this time. If the FCC denies the request, then AT&T will need to make far more expensive and longer-reaching plans to continue to maintain and integrate their two separate networks. This too could keep many Americans gainfully employed, but it might not make investors happy, and will certainly hurt millions of American families and businesses that will be left behind or at the mercy of only a single broadband provider.
What About Subsidies?
Another hurdle is the FCC’s Universal Service Fund (USF), which subsidizes the services receive by millions of old POTS/PSTN subscribers. The rules governing the USF need to be overhauled in order for these subsidies to be paid for digital telephone services, which were viewed as a luxury only a few years ago. If the FCC is truly serious about universal broadband, it will need to ensure a level playing field that does not penalize telecoms for updating their network infrastructure.
AT&T’s Long Game = Fiber?
An old Chinese proverb states that there are many ways to move forward, but only one way to stand still. Assuming that the FCC does allow AT&T to move forward and consolidate their network, what will the future bring? Fiber optics might be the answer, as competitors such as Verizon have repeatedly demonstrated that they can increase the performance of existing fiber optic systems at prices only a slender fraction of what it would cost for a comparable upgrade to even an all-digital wired network. Verizon makes for a great example of where AT&T might go as both companies offer similar all-digital offerings that include digital telephone service, digital cable, and ultra-fast broadband. AT&T already has an extensive fiber optic backbone in place, and may opt to make the transition to fiber optics gradually in the future without needing to maintain two networks as it does now.