In the last newsletter we started a discussion of the pending proposals to eliminate the PSTN and the copper plant, based on an article by our colleague Gary Audin. This time we would like to dig a little more deeply into this issue and also to call for your comments on this issue.
Our colleague and fellow analyst Peter Brockmann observes, “AT&T needs to get the debate going. However, book value (Fairpoint in New Hampshire, Vermont and Maine and Carlyle Group’s acquisition of Hawaii Telecom also from Verizon are both in Chapter 11) is no measure of the value of the asset. It seems the bigger issues are union contracts, pensions and healthcare costs. Equipment amortization expenses (and they don’t consume cash like pensions or healthcare) pale in comparison. These wireline businesses were supposed to become cash-rich operations, but the cost structures weren’t as flexible as the new owners hoped.
“On a lifecycle note, there is plenty of evidence that legacy technologies have a nasty habit of lasting forever (or at least for lots longer than people think). Case in point, lots of people like to point out that buggy whips were a required family vehicle accoutrement 120 years ago and are nowhere to be found, right? Wrong. The outmoded technology, the buggy whip, became a speciality item in niche applications like Amish country Pennsylvania (every farm has a buggy, whip and horses), or with the Calgary Stampede’s annual chuck wagon race teams. The PSTN will decline like that too. Carlyle and Fairpoint’s business plan was to transform the acquired Incumbent Local Exchange Carrier into a cash-rich business except that the recession interfered.
“[Gary] rightly points out that the real goal here is to start the debate about changing the regulatory structure to suit the new realities of competition and choices. I would rather the FCC redesign or perhaps eliminate this regime in favor of simpler methods for assuring coverage in remote/rural areas. Maybe a new class of wireless tower is appropriate?”
Our colleague Doug Foster further observed that the PSTN probably would not go away for quite a while. He said, “Years ago when I started working with the Internet, we had a single document (RFC 1166) that listed all of the Internet assigned numbers and their contacts (yup, I’m in there). That was a time when we thought the Internet would never grow big enough to run out of IP addresses. So now we’re looking at the bottom of the IPV4 address pool and the beginning of a new, bottomless (really?) pit of IPV6 addresses.
“What does that have to do with the demise of the PSTN? Same thing – great concepts never really die, they just keep morphing until they become unrecognizable in their new incarnation. After working with carrier and enterprise VoIP for nearly 10 years at Cisco (and being one of those zealots advocating the death of the PSTN), I can honestly say I was wrong. The PSTN isn’t going to “die”, but it sure won’t look like it does today in another decade. But then come to think about it, show me any 10 year interval where either the Internet or the PSTN looked the same. Hasn’t happened, isn’t going to happen. (See our 2010 IT industry graveyard.)
“I really like Gary’s look at the inflection point we’re about to approach. I like it so much in fact, I think I’m going to print it out and put it in my history box at home; right next to my original copy of the Xerox Ethernet spec, MAP/TOP specs, 1200 baud modem, 1st generation Selsius IP phone, … you get the picture.”
There are myriad issues surrounding this. Indeed, it’s really tough for the PSTN to be profitable. And the use of “business revenues” to supplement “residential revenues” is an increasingly untenable model. Further, to the best of our knowledge, cellular carriers, who are in some cases eating the PSTN’s lunch, don’t have to contribute the Universal Service Fund. (For more on the USF issue, see the July 22 press release from the Rural Carrier Association.)
Clearly, this is an issue that we’ll be revisiting for quite a while.
