Wednesday, May 20, 2009

Death of the Telcos | 
Death of the Telcos

Monday, 27 April 2009 17:15

“We are a wireless company,” Randall Stephenson's first major public comment as AT&T CEO. He decided in 2003 to let the copper phone network slowly die.

Repeat: Randall in 2003 decided to let the copper phone network slowly die. AT&T is seriously disinvesting from the landline business, after cutting capital spending in half. I know that's hard to believe, but his cold equations are clear. Landline decline is inevitable, Randall now tells the WSJ, and there’s no point trying to fight it. “You could try to hold back the tide,” he said, “but that’s a very frustrating proposition. Or you could say, let’s get ahead of the market, let’s get ahead of the mobility curve. We have 77 million wireless customers and 30 million consumer phone lines. Which customer base would you rather work from?” He's losing 3M customers a year, almost ten percent of what's left.

Eircom is talking about not being able to pay its debts. Windstream went from junk to junker. Hawaiian Tel is bankrupt, and Fairpoint close. Nearly all the other U.S. RLECs fail without a wildly excessive subsidy. No copper network is unaffected, and not all are following Verizon's upgrade path.  I am not saying AT&T is going broke - the DSL and wireless part of the business has been increasing profits. I'm talking the PSTN - the public switched telephone network. Letting the phone network die may or may not be the right choice for the company profits. We won't know until we see the results of widescale DOCSIS 3.0 deployments in 2010-2012. Most of the industry thinks Verizon is right, and AT&T will be clobbered because cablecos have some great technology coming. Saul Hansell at the NY Times calls AT&T's choice "harvest mode" and anyone who cares about the U.S. economy will be unhappy. It's incredibly cold-blooded to let a $50B/year and 50,000 jobs business go away, but Randall is paid $20M to make tough decisions.

This means, of course, that any "incentives" to invest or “broadband stimulus” will simply be collected from the government and passed out the other door to shareholders. So will most of the money from any price increases allowed or favorable changes in ICC and USF. "Facilities-based" wireline competition cannot be good policy, because no one will build a new network in a declining industry. Wireless has speed limits that make it only a partial substitute.

The Pony Express was the best way to send a message to California until the telegraph came in 1861. It died almost immediately, but the death of wireline phones will take 10-20 years. People have bonded with mobile phones, unwilling even to walk across the room to make a call. The mobile is as much a friend as the person calling. Subscribers are dropping even at mighty China Telecom. The hundreds of million Chinese unconnected will go mobile. Most telephone companies in the west will lose half their lines in the next decade if present trends continue. (part one)

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