Thursday, November 15, 2012

Terminating the PSTN

            A month or so ago Telecommunications Policy published my article entitled The Mixed Blessing of a Deregulatory Endpoint for the Public Switched Telephone Network.  At the time of publication I did not have the insights and clarity of purpose provided by AT&T’s bold initiative to couple a substantial increase in capital expenditure with the elimination of regulation. See

           AT&T couches its proposal as the progressive and timely replacement of copper-based telephone technology (Time Division Multiplexing) with a wireless-friendly and Internet-based standard.  Of course we should applaud new “sunk” investment in infrastructure and yes an Internet Protocol standard efficiently promotes technological and marketplace convergence.  But as I stated in the article there is more to this initiative than AT&T benevolence and competitive necessity.
            It has become clear to me that AT&T seeks to leverage “spade ready,” “job creating” investment for the following financial benefits:

1)         elimination of hundreds of thousands of jobs many of which are currently filled by union employees;
2)         billions of dollars in avoided tax liability generated by the coupling of new capital investment and the write off of most copper and obsolete switch assets that have artificially elevated values which, over the years, have rewarded AT&T and other incumbent wireline incumbents with excessive rates of return and universal service subsidies; and

3)         the replacement of common carrier regulated telecommunications services with a blend of mostly unregulated information services with a few residual telecommunications   services, such as basic wireless voice treated as common carriage, but subject to “streamlined” regulation.
           The quid pro quo that AT&T proposes surely will come across as reasonable if not generous to the uninformed and the purposefully ignorant legislator.  To be clear AT&T must upgrade its network in recognition that basic voice revenues—wireline and wireless—will decline substantially.  Why not leverage such necessary investment in exchange for a Christmas wish list of deregulatory—make that unregulatory—goals?

           Only in this purposefully ignorant and politicized environment can AT&T and other incumbents condition essential and commercially necessary change with regulatory changes that eliminate still needed safeguards.  Do we honestly think the migration from wireline service, backed up by carrier of last resort duties, to wireless service, with no geographical service mandates and rate oversight, will have no adverse impact of the current price, quality of service, availability, reliability, consumer protection and the public interest safeguards available to wireline consumers?  Didn’t AT&T claim that chronic spectrum shortages would prevent it from providing reliable service, or what that a red herring (or lie) to support its acquisition of T-Mobile?
            More fundamentally, does a change in baseline technology and medium eliminate the need for government oversight?  Exactly what does this shift do to the level of marketplace competition in basic and enhanced services?