The End of the Wired Telephone Network is Coming...But Not Soon Enough

The End of the Wired Telephone Network is Coming...But Not Soon Enough

By  Larry Downes, Contributor   |   October 30, 2013

Something of a tempest in a teapot has sprung up over Hurricane Sandy’s impact on one New Jersey community.  Last week, a New York Times article cited complaints from some residents (one, actually) of Mantoloking, an island off the coast of New Jersey that was badly hit by the storm.

The problem?   Verizon, one of the companies that provides voice communications for Matoloking, had decided not to rebuild the island’s copper telephone network, which was destroyed by the hurricane.  Instead, the company offered residents a wireless phone service, at least as a short-term fix.   “Verizon decides then and there to step on us,” the article quotes the resident.

In a column published over the weekend, the Wall Street Journal’s Holman W. Jenkins, Jr. took issue with efforts to turn Mantoloking into an “object of pity” for being left without telephone service as a “second blow” after the hurricane.

Before Sandy struck, Jenkins notes, 80% of the island’s phone traffic had already moved to mobile devices.  And even without rebuilding the aged copper plant, residents still had the superior wireline option of digital voice service from cable provider Comcast.

Jenkins’s ire at what he called the “media’s bag of overused story lines” about fast-changing telephone technologies and their effect on some groups of users is understandable.  Tales of copper phone networks lost to the hurricane are, to mix several metaphors, red herrings.  They are being thrown in the water, often cynically, in hopes of agitating consumers against the on-going and largely organic transition away from the aging and obsolete analog telephone network, sometimes known as the Public Switched Telephone Network (PSTN), and toward its all-digital Internet-based replacement.

Verizon isn’t rebuilding destroyed PSTN networks because they are cruel, but because there are already better options.  Indeed, natural disasters aside, most Americans have already made the switch to digital telephony, and have done so on their own schedule and for all the right reasons.

The Internet’s packet-switching architecture, open standards, non-proprietary protocols, peered networks and digital hardware are clearly better than separate, closed networks based on older analog technologies.  They are also cheaper to operate and maintain.  Competition among Voice over Internet Protocol (VoIP) providers is fierce, and prices are falling.

This is precisely the kind of technological innovation that my co-author Paul Nunes and I refer to in our forthcoming book as a “Big Bang Disruption.”  Big Bang Disruptions are innovations that compete simultaneously with incumbent products on every strategic dimension at the same time—price, quality, and continuous improvement.

The disruptors behind the transition to IP telephony are network technologies that operate natively using the packet-switching protocols of the Internet.  While phone companies once dismissed IP as unsuitable, carriers large and small have now embraced the Internet as the only option to satisfy exploding demand from consumers, cloud-based services, and the coming data deluge of machine-to-machine communications known as “the Internet of Things.”

IP networks, crucially, don’t care if the packets they transmit contain voice, data, or video content—one network can handle voice, video, and data.  Little surprise, then, that IP technology has already won the telephone war, just as it won the data war and is quickly winning the video war, too.  Voice traffic, whether over increasingly high-speed mobile networks, the cable system, or over-the-top Internet-based providers including Skype and Vonage, has gone digital.  Increasingly, it’s just another app.

No surprise, then, that customers are voluntarily abandoning wired telephone service in favor of fiber and cable-based VoIP and mobile broadband at a remarkable rate.  At its peak, the PSTN network connected nearly every American.  By the end of 2011, less than half of all American homes still had a wired connection.   That number could fall to as little as 25% by 2015.

As the number of homes yet to cut the cord to the PSTN network continues its precipitous drop, the endgame is now in sight.  Even the FCC, which regulates the old network under rules largely unchanged from the days of the government-sanctioned telephone monopoly, has called for its quick and orderly retirement.

But there’s a catch.  Carriers can’t simply turn off the PSTN network, even in the vast majority of locations where better and cheaper options are widely available.  That’s because decades-old regulations still on the books require the continued operation of the decaying and obsolete analog network, no matter how few users it still has and regardless of cost.

The legacy PSTN rules have unintentionally created an enormous black hole for regulated network operators.  As fewer customers subscribe to wireline services, the cost of maintaining aging copper and analog switches is increasing dramatically, both in absolute terms and on a per-customer basis.  As much as 50% of current wireline expenditures go toward maintenance.  By comparison, the operating expenses of native IP networks can be as much as 90 percent less than for PSTN.

PSTN providers can’t beat better and cheaper with worse and more expensive, especially when worse and more expensive has to stay that way as a matter of law.   Something has to give, and regulators know it.  In its visionary 2010 National Broadband Plan, the FCC acknowledged that “regulations require certain carriers to maintain” PSTN, a “requirement that is not sustainable” and which is forcing investments in network assets likely to be stranded in the transition.  The FCC concluded soberly that

These regulations can have a number of unintended consequences, including siphoning investments away from new networks and services. The challenge for the country is to ensure that as IP-based services replace circuit-switched services, there is a smooth transition for Americans who use traditional phone service and for the businesses that provide it.

The longer the carriers are required to spend money maintaining the obsolete networks, as the FCC acknowledges, the less capital budget is available to accelerate the replacement of aging and obsolete equipment with better and cheaper IP technologies, including fiber optics, digital switches, and upgrades to straining cellular networks.

Consumers as Human Shields

To their credit, the incumbent providers are trying to retire and replace what had been, until recently, their most valuable assets.  But FCC and state regulators have balked at approving the final switchover, even as consumers take matters increasingly into their own hands.

The source of both holdup and the horror stories are the same:  a coalition of self-interested parties hoping to prop up the PSTN network, if only for just a little longer.  The group includes Washington advocacy groups, state and local regulators, and marginal participants in the dying wireline supply chain.  Each of them, for different reasons, have been tilting at whatever windmills they can find, pleading their case to Congress, the FCC, and the press, spreading fear, uncertainty and doubt about the transition to all-IP networks.

The advocacy groups reflexively fear any technological advance that reduces the need for government regulation of network infrastructure. For state and local regulators, the concern is losing their influence over service providers, and with it the regular opportunity to extract concessions for changes in equipment or service.

And so-called “competitive” local phone companies, who piggy-back their services off the equipment of the incumbents, know that the faster consumers embrace free or bundled VoIP, the weaker their subscription-based business model—and future survival–appears.

Over the summer, I had a front-row seat in the sometimes unprincipled fight against the all-IP future these groups are waging.  Based on some of my earlier posts for Forbes.com, I was called to testify at a hearing on the State of Wireline Communications before the Senate Commerce Committee.  (My full testimony is available here.)   I was the only witness not associated with an advocacy group or trade association.

I encouraged the Committee to move aggressively toward deregulating the PSTN shutdown.  As I noted in my statement, there are of course engineering issues left to be worked out in completing the transition, including upgrades to older analog devices such as some fax machines and security gates, improvements to emergency systems and broadband alternatives for rural consumers.  But these engineering issues, I said, will be solved the way they always are—by engineers.

My fellow panelists, on the other hand, served up a generous helping of sour grapes.

The few technical issues that need to be resolved to complete the transition were blown up into absurd proportions.  Implausible competition problems were touted as near-certainties.

Consumers who are enthusiastically embracing better and cheaper technologies were dismissed as dangerously naïve, and then deployed as human shields to justify continued regulation, corporate subsidies, and delays in needed approval by regulators to finish the hard work that has largely gone on while state and federal agencies have dithered.

In response, I reminded the Committee that similar scenarios were raised, exaggerated, and ultimately resolved in the 2009 transition from analog to digital television broadcasts.  The solution there, as here, was to set a date certain for the retirement of the older network and let the affected industries sort out the details.  There is much that can be learned, good and bad, from that experience.

I urged the Committee to set a deadline for the retirement of the PSTN network and watch as innovators solve the remaining technical problems in short order.

Is the Logjam Finally Breaking Up?

But wireline phone providers aren’t asking for anything as bold as a deadline.  All they want is permission to conduct trials in limited geographies where PSTN networks could be fully converted to IP, largely to determine what work will still be required to finish the job.

Yet so far, under pressure from special interests, the FCC has failed to approve these requests.

Fortunately, there are signs that the stalemate is beginning to dissolve, and with it some of the non-sequitur arguments and overblown rhetoric opposed to the transition.  Notably, the Senate on Tuesday finally confirmed the appointment of Tom Wheeler to be the new Chairman of the FCC.  In his confirmation hearings, Wheeler cited the retirement of the PSTN as a high priority.

And last week, the House Energy and Commerce held its own hearing on the topic, where the conversation was considerably more cordial and conciliatory than at the Senate hearing.  Providers praised the basic transition principles proposed by advocacy groups, which include embracing longstanding PSTN goals of service to all Americans, public safety, and network reliability.  The advocacy groups in turn acknowledged that retiring the PSTN network was both inevitable and a good thing for the consumers they purport to represent.

Republicans and Democrats, likewise, agreed that an accelerated and coordinated completion of the transition was an essential public policy goal, and an opportunity for Congress and the FCC, who have the final say on shutting down the old network, to accelerate rather than delay valuable investment in next-generation broadband services.  Rep. Henry Waxman (D-Calif.), for example, asked witnesses if they thought the FCC was moving fast enough in approving the limited trials.

Even without the approval of regulators, the number of American homes subscribing to the PSTN network will continue to decline.  So why is an FCC-coordinated retirement of the network that once connected nearly everyone so important?

Beyond avoiding the “unintended consequences” of wasting infrastructure dollars and unnecessarily stranding network assets in the declining PSTN, quickly and efficiently transitioning every American to IP telephony would help those users who still rely on it to make the leap to the 21st century—to broadband Internet and all the services beyond voice it has to offer.

Critics of an accelerated IP Transition warn of the risk of leaving behind the remaining Americans who still rely solely on PSTN, particularly in rural communities, and among some elderly and low income households.

But here in Silicon Valley, we see it very differently.  We believe that getting these communities onto IP networks sooner rather than later will make it easier and less expensive for them to connect to other broadband services, including video, email and Web access.  The faster we can shut down the obsolete PSTN network, in other words, the faster we can close what’s left of the digital divide.

That’s because the dwindling number of wireline customers are also, not surprisingly, those least likely to be using the Internet.  According to research from the Pew Internet Project, that’s about 20% of American adults–a group that nearly perfectly overlaps with those still tied to the PSTN network for voice.   Almost half of non-Internet users, for example, are age 65 or older. More than 40 percent do not hold a high school diploma. (Other factors, including sex, race, income level, and geographic location, are less significant, and continue to decrease.)

According to the Pew Internet Project, the most frequent answer given by non-users as their primary reason not to connect is that the Internet is “just not relevant to them.”  The problem isn’t availability or cost.  They simply believe there’s nothing online for them.

The Moment of Truth is Here

But even if that is true today, it won’t be in the near future.  Daily life is increasingly lived online.  Moving offline Americans to all-IP networks, if only for voice, will get us halfway toward showing them otherwise.  The other half should be easy, or at least easier.

Ensuring a smooth transition to the digital world will jump start the crucial process of bringing the voices of older and less-educated Americans fully into the online conversation, an upgrade that will benefit everyone.

With the PSTN network off and everyone transitioned to native IP, we can that much sooner build the next generation of Big Bang Disruptors to revolutionize, as the National Broadband Plan predicted, education, health care, energy, employment, community, public safety, and entertainment.

For Congress and the FCC, this is the moment of truth.  The IP Transition is gaining speed, and its ultimate completion is inevitable.  But even inevitable advances in technological progress can be warped by regulators continuing to cling to legacy rules that are as obsolete as the older technologies they were built for.  By failing to embrace and engage the transition at the behest of groups with only their own parochial interests in mind, the government is unintentionally denying some consumers the full benefits of the Internet ecosystem.

In the end, offline Americans will not be victims not of the retirement of the PSTN network but of the regulatory logjam that is slowing it down.

If we move quickly, we can solve the remaining technical obstacles and remove the social barriers that keep some adults stalled in the 20th century.  We can agree to core principles for the emerging communications infrastructure that will make it even more successful than the one it is replacing.  With public education promoted by leaders in both government and industry, we can ensure a smooth transition for everyone, closing what’s left of the digital divide quickly and definitively.

That’s not just my opinion.  At a hearing Tuesday before the Senate Commerce Committee, witnesses from across the political spectrum testified to the urgent need to accelerate Internet adoption among the few remaining Americans who continue to live in the analog world.  Former Congressman John Sununu, for example, called for increased public and private partnerships to improve digital literacy, to keep Internet access affordable, and to maintain the light-touch regulations that have made possible the vibrant digital ecosystem.

As he settles into his new office on the eighth floor of FCC headquarters, Chairman Wheeler can take a giant step forward toward the goal of universal broadband adoption by accelerating the proposed trials.  If nothing else, that will make clear what still needs to be done before turning off the PSTN and getting everyone connected to the Internet.

No one can object to that—at least not with a straight face.

Follow me on Twitter @LarryDownes.  And if you’re feeling flush, pre-order “Big Bang Disruption” (Portfolio, Jan. 7, 2014) on Amazon or Barnes & Noble.

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