by Mike Vogel
Updated 6 yearss ago
Old copper-wire phone technology is disappearing. Should upstart phone providers be allowed to piggyback on the new fiber networks the traditional powerhouse phone providers are installing?
Since taking over a year ago as AT&T's Florida president, Joe York has spent an inordinate amount of his time in a small section of Palm Beach County west of Delray Beach best known for suburban retirement communities. York's a regular face there at town halls, homeowners association meetings and "senior tech training" days.
He's there so often because West Delray is one of two trial sites nationally that will shape the future of both AT&T and the entire phone business. Under Federal Communications Commission supervision, AT&T is moving the area off the old phone technology of copper wires and networks of switches, which dates back to Alexander Graham Bell, and onto a modern, internet-based fiber network.
Fiber networks are nothing new, and customers have been abandoning copper wire land lines for years ["Trend No. 3: Technological Shift," page 76]. But the AT&T trial marks the first time the FCC is allowing a phone company to shut down a copper-wire network across an entire community.
AT&T sold the feds on the experiment as a way toward a new regulatory scheme better suited to the new era. How it plays out has implications throughout Florida as the state's big three telecoms — AT&T, Verizon and CenturyLink — and the smaller, largely rural-serving telecoms contend against each other and cable companies and wireless providers.
Once upon a time, "incumbent" telecoms like AT&T and Verizon provided monopoly phone service within federally defined territories. Deregulation in 1996 and technology changes have transformed the industry. The former monopoly phone companies have morphed into mobile phone and data delivery companies while deregulation required them to sell access to their landlines — at discounted, regulated rates — to startups and other telecom competitors. The dramatic reshaping of the industry has changed who provides land line service and how it's provided.
Since then, market forces have reshaped, dramatically, both who provides land line service and how it's provided.
Just six years ago, traditional phone companies held 70% of the business phone market in land lines and 76% of the residential market in Florida. Today, the old powerhouses have only about half the business market and half the residential market. The Florida Public Service Commission says AT&T's number of home land lines in one recent year fell by 23% and business lines by 10%.
Along with the shift in land line market share, there's been a shift in technology — from the old copper wire network to fiber. Since 2008, business customers in Florida have added 411,000 lines using fiber and voice over internet protocol, or VoIP. Meanwhile, the number of business customers using old-style land lines dropped by 791,000.
The trend is the same in residential: 2.85 million traditional land lines disappeared, while 1.7 million internet-based lines connected. Note that the net number of both business and residential wired land lines fell. "Florida is a leader in the exodus from the traditional land line," York says.
Not content with dominating the fading copper wire technology, the telecoms have invested big in fiber. AT&T won't disclose how much it has invested in Florida, but it has spent $20 billion nationally to lay fiber. Verizon has spent $2 billion in Florida of the $22 billion it's spending nationally on fiber and is still working to complete the overlay of its legacy footprint with fiber service.
Not so fast
Amid the dramatic change in technology and customer preferences, the telecoms face the issue of what to do about the aging — and expensive-to-maintain — copper wire phone networks.
The traditional phone companies can't simply shut off the power to copper lines when there aren't enough customers to make it profitable. There are technical issues: Getting home-alarm monitors, medical alert devices and some 911 functions to operate properly on fiber, for example. But the biggest issue is regulatory: The old network remains the subject of legislation and a thicket of FCC rules, dating to the days of phone monopolies, that control whether telecoms can drop service.
The older telecoms say that with customers leaving at exponential rates and competitors free to invest where they deem proper, they too want the freedom to put their money where they see fit. AT&T wants to move wired line customers in its 22-state service area to VoIP within six years. Verizon has similar intentions but hasn't announced a timeline.
To show the FCC it needs a lighter regulatory hand, AT&T in 2012 asked for trials in select regions — the FCC agreed to the experiment in West Delray and another in rural Alabama — where customers would be moved from the old copper wire phone system to internet-based service plans. How much customers pay deppends on what services they buy.
"It's been fairly well received," says Delray resident Bob Schulbaum, president of the Alliance of Delray Residential Associations, a group of 92 homeowners associations representing 110,000 residents.
Some in the area worry about losing phone service during hurricanes. But in Schulbaum's own 500-home community, residents were delighted one day to find AT&T installing fiber because it meant having an alternative for TV service to the cable company, he says. "You can't hold back the future," Schulbaum says.
The traditional telecoms would like to accelerate it. Fiber networks are cheaper to operate, use bandwidth more efficiently, open the door for blending wired and wireless service and allow the selling of packages of services — whether cloud storage or AT&T's U-verse, which combines voice and data, especially video much in demand by customers, at transmission speeds customers also increasingly want. AT&T last year acquired DirecTV; it sells DirecTV in areas it doesn't reach with U-verse.
The question now is whether the newer telecoms and internet service providers like Atlanta-based Earthlink should have the same access to the incumbent carriers' fiber lines that they've had to the old copper wire lines.
If the incumbents cut off the upstarts from access to the fiber lines, "they renew the monopoly," says Eric Einhorn, senior vice president for government affairs for Arkansas-based Windstream, a telecom that's active in both camps. It's the incumbent telecom provider in a small portion of north Florida but has been growing fast, over other telecoms' lines, in business customers in south Florida.
The Consumer Federation of America likewise wants FCC regulatory authority extended over fiber. FCC Chairman Tom Wheeler sides with the companies demanding access.
In November, the FCC proposed rules to "preserve competition" and "last mile" access for competing companies on fiber.
AT&T and Verizon don't want legacy regulations extended over the new technology, however. AT&T says the FCC found a decade ago that refusing access to fiber didn't hurt competing telecoms. Such regulation is a disincentive to expanding fiber to more people, it says. AT&T also has argued to the FCC that it makes no sense to regulate it and its telecom brethren as if they were dominant monopolies when competitors now lead the market. In fact, AT&T said, it's at a disadvantage: It has to serve every house in its legacy territory on demand. Newer competitors have newer, more technically advanced, lower-cost networks, non-union workers, lower benefit costs and fewer retirees.
AT&T has said the trials in Alabama and Florida will show that conventional public utility regulation no longer is needed and will establish practices for informing customers about their options in the new environment.
York says the trial will take awhile as will the shift away from the old technology. "This is a process that will take years to work through," he says.
Incumbent Local Exchange Company — A phone company that was providing local phone service before June 30, 1995. The three largest in Florida are AT&T, CenturyLink and Verizon. The smaller ones — often called rural ILECs — are Frontier Communications of the South, FairPoint Communications, ITS Telecommunications Systems, NEF COM, TDS Telecom/Quincy Telephone, Smart City Telecom and, the largest, Windstream. In 2013, the incumbents became a minority in the wireline business market in Florida for the first time when CLECs took a 51% share. But ILECs and CLECs combined lost 7% of traditional phone lines in 2013 as people switched to mobiles or cable companies. A company can be an ILEC in its home market while being a CLEC in a different market.
Competitive Local Exchange Company — A carrier that began providing local phone service after July 1, 1995. There are upward of 290 operating in Florida. Traditionally, they focus on business customers. Their share of the wireline residential market, not counting the cable industry, in Florida is around 2%. Their share in the business market now eclipses that of the ILECs.
Business Lines: The Trends
Between 2008 and 2013:
51 % — The share of business lines held by cable and non-traditional telecom companies (CLECs), up from 30%.
16 % — The business line market of "new tech" fiber and VoIP, up from about 4%. "Old-tech" copper wire accounted for 96% of all business lines in 2008.
9.7 % — Percentage drop in number of business lines, from 3.93 million to 3.55 million.
Mobile Subscribers: Growth, Growth, Growth
19 million — Mobile phone use has soared in Florida, with the number of mobile subscribers in the state climbing 51% since 2005 to roughly 19 million.
40 % — According to federal data, 40% of Florida households are wireless only; just 6.5% rely solely on a land line.
83 % — Mobiles are the phone service of choice for the poor. Since 2007, participants in a carrier-subsidized program for low-income people have moved from 98% on land lines to 83% on wireless.
Land Lines: The Trends
Trend No. 1: Fewer
18% — Decrease in the number of residential land lines between 2008 and 2013. In 2013, 1 million fewer Floridians had a land line than in 2008.
Trend No. 2: Shift in Operation
76% — In 2008, traditional telecom companies like AT&T and Verizon (so-called "ILECs") held more than three-quarters of all residential land lines in Florida.
51% — By 2013, the share of all residential lines in Florida held by traditional telecom companies had shrunk to just over half.
Trend No. 3: Technological Shift
85% — In 2008, eight of 10 of all land lines in Florida were "old tech" copper wire linked by circuits and switches.
57% — By 2013, only six out of 10 land lines in Florida were "old tech" as the market shifted toward "new tech" — fiber with VoIP (voice over internet protocol).