Shutting Down The Phone System Gets Real: The Implications of AT&T Upgrading To An All IP Network.
Shutting Down The Phone System Gets Real: The Implications of AT&T Upgrading To An All IP Network.
Shutting Down The Phone System Gets Real: The Implications of AT&T Upgrading To An All IP Network.

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    I believe AT&T’s announcement last week about its
    plans to upgrade its network and replace its rural copper lines with wireless
    is the single most important development in telecom since passage of the
    Telecommunications Act of 1996. It impacts just about every aspect of wireline
    and wireless policy.

    For those who missed it in the morning-after blur of the
    election results, AT&T announced that it will invest an additional $14 billion
    to upgrade its wireline and wireless networks, so that it projects investing
    $22 billion a year for the next several years in capital expenditures (“CAPEX”
    as they say on “The Street”). At the end of the three year time frame, AT&T
    expects to have converted its existing “time division multiplexing” (TDM) phone
    network entirely to an IP-based network which will seamlessly mix its wireless,
    remaining souped-up copper, and fiber (but not fiber-to-the-home). Since all
    existing phone regulation governing universal service, consumer protection, and
    competition rest entirely on the existing TDM/copper network, AT&T
    simultaneously filed a petition with the FCC to “begin a dialog” on how to
    address the regulatory issues raised by this shift and proposing some entirely
    deregulated “pilot programs” to determine what regulations are “really”

    Setting aside my skepticism that these pilot programs offer
    anything of value, I thank AT&T for beginning with an offer to talk. At the
    same time, I’m mindful we need to get the key elements of the new framework
    down over the next year or two – which is practically nothing given the
    complexity of the issues and the number of stakeholders involved. It puts a
    premium on communities working quickly to come to internal consensus and on
    trying to bring as many allies to the table as possible. Ideally, we would set
    universal rules for all IP networks, but this would meet fierce resistance from
    existing IP-providers. Nevertheless, AT&T raises a valid point of concern
    if the rules for the TDM to IP apply only to it and other Local Exchange
    Carriers (LECs) upgrading their networks. The FCC must balance these concerns
    about competition and fairness with the broader questions of what happens when
    our 100-year-old copper safety net gets replaced by an essentially unregulated
    IP-based networks.

    What’s At Stake?
    Everything In Telecom Policy.

    To list just the headline questions:

    • What happens to the concept of universal
      service, particularly in rural areas? AT&T itself says in its
       that its new combined 4G LTE and wireline IP footprint will cover “Ninety-nine percent of existing customer locations.” That loss of 1%, while small in absolute terms, potentially means many thousands of people losing access to
      basic phone service.
    • Even if AT&T’s wireless footprint precisely
      overlapped its rural copper footprint, there would still be significant
      questions about reliability and price.  Traditional phone service has minimum
      standards of quality enforceable at the local level, and in most states a
      requirement to offer basic voice service at a regulated price. This combination
      of a requirement to serve everyone in the service territory, at a minimum
      standard and to offer a basic, affordable voice option is generally thought of
      as “Carrier of Last Resort” (CoLR) regulations. If AT&T transition to
      IP-based networks and eliminates its CoLR obligations associated with its traditional
      telephone service, what happens? In rural areas, wireless signal might not have
      the same quality as existing copper, or it might become unaffordable for poor
      subscribers in rural and urban neighborhoods where low-income families rely on
      a low-cost basic voice service.

    Nor can we ignore the impact on the hard of hearing
    and the visually impaired. Basic copper voice service has built-in
    capabilities for the deaf, and home equipment designed for the visually
    impaired. How will the changeover impact these communities? 

    In other words, while the new network will definitely
    be a better network, offering a more valuable bundle of services, it may not be
    either available or affordable to all Americans in the way existing phone
    service has been for decades. We could become the first industrialized nation
    to move backward on availability of
    basic voice service to all people.

    • Copper is built to 99.999% reliability, the
      “five 9s” of a public utility. Wireless and IP-based networks do not come
      anywhere close to that. In the aftermath of Hurricane Sandy, New Yorkers
      without power for IP-based services or cell service went combing their
      neighborhoods for payphones
      – which continued to operate because they connect
      through independently powered copper networks. What happens in 22 states when
      that older, more expensive but more reliable technology is replaced with
      better, faster but more fragile technology?


    • What happens to the Universal Service Fund? The
      current AT&T telephone network provides a significant portion of the
      existing contribution to the fund because only traditional telephone networks
      are (at the moment) required to pay into the fund. DSL and other IP-based
      networks do not pay into the fund.

    For years, contribution to the Fund has been eroding.
    AT&T’s proposed rapid transition of its entire network will dramatically
    accelerate this trend. Many states have separate state-based USF funds.
    AT&T territories, this will be even more impacted.


    • A host of policies remain confined to the
      telephone world and not the IP-space. These include pro-consumer policies on
      privacy and billing, and pro-competitive policies such as special access and unbundled network elements (UNEs). To the extent these policies apply at all
      to IP-based networks, they do so as “ancillary” to existing telephone networks.
      Even access to phone numbers is technically limited by statute to
      “telecommunications providers,” and is assigned to IP-based networks by
      regulatory fiat. What happens to these policies when the telephone network that
      supports these policies disappears? What protections will consumers or
      competitors continue to enjoy with regard to things like privacy,
      truth-in-billing, and signal quality?
    • Most importantly, the FCC must decide the
      question of whether IP networks must interconnect with one another. Right now,
      they do not. And every now and then we have a “peering dispute” where networks
      refuse to exchange traffic because they cannot agree on terms. What happens if
      AT&T and Comcast cannot agree on terms, and several million AT&T Wireless
      subscribers can no longer call home? If this seems unlikely to happen, I remind
      folks that no one ever imagined that cable systems or DBS providers might go
      for weeks or even months without local broadcast channels because of “retrans
      fights.” However, when DISH subscribers must make do without AMC or when
      Cablevision subscribers can’t watch Food Network, it’s merely annoying. When
      people with Comcast phone service can’t call AT&T or AT&T wireless
      subscribers, the impact – for the economy, for public safety, and for the
      individuals involved – is a hell of a lot more significant than missing “Mad
      Men” or “Chopped.”
    • How will AT&T’s investment impact the
      digital divide and problems of digital adoption, particularly in minority
      communities? There is no question that, handled correctly, this massive
      investment in infrastructure could prove a tremendous boon to communities that
      have until now been in danger of marginalization. At the same time, we must
      also recognize the danger that a poorly handled transition to all-IP networks
      could cement the status quo, or even worsen existing digital inequities.

    This is a daunting list of questions to resolve. Many of
    them have been the focus of quiet conversation in telecom policy circles for
    years. AT&T itself raised these questions during the National Broadband
    Plan in 2009.
      But while everyone could
    see that someday we would need to
    address these issues, the all-IP future always seemed comfortably enough away
    that the FCC could defer these questions for another day.

    That day has now come.  AT&T’s announcement that it will phase out
    its traditional phone network and convert entirely to an IP-based network over
    the next three years forces us to address these questions in a relatively short
    period of time.  AT&T, to its credit,
    has acknowledged that it must undertake a dialog with stakeholders and
    regulators. For our part, we at Public Knowledge welcome this opportunity. 

    Real Investment That Creates
    Stronger Networks Is Always A Good Thing.

    Let us be clear. We want this investment to happen. This
    investment will create a combined wireless and wireline network that is truly
    greater than the sum of its parts. This is how competition is supposed to work. AT&T invests to
    meet the challenge from cable operators on the landline side and from its wireless
    competitors. This, in turn, forces the cable operators and wireless carriers to
    respond with improvements and lower prices of their own.

    Those dismissive of the upgrades to copper overlook two
    critical aspects. First, it was only a few months ago when all copper was
    supposedly destined for the ash-heap of history, and the war between cable and
    copper settled entirely in cable’s favor. This upgrade potentially restores DSL as a viable, low cost alternative able to
    put price-pressure on cable systems and force cable operators (particularly in
    mid-size markets) to accelerate their own upgrades.  Second, and more importantly, this network is
    designed to fully integrate its wireless and copper components. This will have
    major impacts on spectrum policy and vastly accelerate the shift to small cell
    architecture and the trend of enhanced reliance on unlicensed spectrum to
    augment licensed spectrum.

    More importantly, this investment and network upgrade will
    happen whether we want it or not. We at PK do not doubt that AT&T intends
    to invest the promised $22 billion per year over the next three years. In the
    past, we have not hesitated to express hearty skepticism where AT&T (and
    other companies) have promised to invest in exchange for regulatory relief. But
    unlike previous announcements made to regulators and made explicitly contingent
    on receiving regulatory relief, AT&T’s announcement here is wholly
    different in nature and character. First and foremost, AT&T made this
    announcement not to regulators alone, but to a conference of Wall Street
    analysts. No publicly traded company tells Wall St. it plans to make enormous
    investments in capital expenditures that will take several years to pay off
    unless it has absolutely no choice.

    And AT&T has no choice. Competition is forcing AT&T
    to invest in its networks or risk obsolescence. Cable providers have already
    taken AT&T’s residential wireline business, and are eating into AT&T’s
    commercial enterprise customers.  Verizon
    Wireless has a superior wireless network, and both T-Mobile and Sprint are
    pouring billions into network improvements and upgrades. AT&T either
    upgrades or goes under. This is why AT&T’s filing makes it clear that
    AT&T is going ahead with this investment whether or not the FCC grants it
    any kind of regulatory relief.

    Where Do We Go From

    AT&T has called for a dialog to begin in earnest. While
    all stakeholders should welcome this opportunity, we must not lose sight of the
    fact that AT&T – as a profit-maximizing firm seeking to minimize its costs
    – will look to cut the best deal it can. I confess I am deeply skeptical that
    AT&T’s proposed regulation free zones in the form of a “pilot program” can
    teach us anything of value. Further, while AT&T has acknowledged that the
    shift to IP networks should not be entirely “regulation free” and must
    acknowledge the historic duties associated with its traditional copper network,
    I recognize that AT&T (in this filing and in past filings) has also suggested
    that the FCC’s authority, if push came to shove, is extremely limited.  AT&T is also at pains to observe that
    cable operators and other competitors do not face the same traditional
    regulatory burdens, and to sing from the usual hymnal the paeans of praise to
    the deregulated world of IP-based networks.

    I do not say any of these things to suggest that AT&T is
    not approaching this with good faith. But no one should imagine that AT&T
    is a charity. This network upgrade raises critical questions that go to the
    very basis of the FCC’s authority over core communications in this country and
    the 100-year old social contract that made voice service in the United States
    universally available, affordable, and reliable. Even were the impact confined
    to the millions of customers in 22 states that subscribe to AT&T’s wireline
    service, this would be a critically important and monumental set of
    proceedings. The decisions made here will ultimately impact everyone,
    regardless of what service they use to communicate. This conversation will
    happen at the local level, the state level and the federal level. It will
    happen at the FCC and in Congress.


    Every stakeholder community needs to carefully consider its position
    and come ready for some hard bargaining. The traditional battle lines and
    positions need to be carefully reexamined. The world is changing, and it will
    make a radical change like this only once. This is not the time to repeat the
    rote responses of the past. This is not going to be some Libertarian nirvana
    where the regulatory state withers away and we shall move from each according
    to his need to each according to his ability to pay. Neither is traditional
    regulation going to remain unchanged. Anyone taking either position is
    effectively removing him or herself from the real conversation that must take

    What we need to do, individually and collectively, is figure
    out how to take the values of the 100-year old social contract in telecom that
    has served us so well as a nation and decide how to express those values in
    concrete terms for the next generation of networks. That won’t be easy. But
    stuff that matters never is.