Democracy & Technology Blog Landline rules won’t work for telecoms, or for Susan Shaw

Cecilia Kang of the Washington Post reports that

the telecom industry is forcing policymakers to re-examine what has long been a basic guarantee of government – that every American home should have access to a phone, along with other utilities such as water or electricity. Industry executives and state lawmakers who support this effort want to expand the definition of the phone utility beyond the century-old icon of the American home to include Web-based devices or mobile phones.

The quid pro quo for a monopoly franchise was an obligation to provide timely service upon reasonable request to anyone, subject to regulated rates, terms and conditions. The Telecommunications Act of 1996 eliminated the monopoly franchise, but the obligation to serve remains in the statute books of most states. Telecom providers, aka carriers-of-last-resort (COLR), are stuck with the quid without the quo.
This has become a problem as more and more consumers are “cutting the cord” in favor of wireless or VoIP services. AT&T, for example, has lost nearly half of its consumer switched access lines since the end of 2006. However, most of the loops, switches, cables and other infrastructure which comprise the telephone network must be maintained if telecom providers have to furnish telephone service to anyone who wants it within days.

The network consists of approximately 45 million tons of copper, not to mention thousands of supercomputers (optimized for switching calls, not routing packets), plus cavernous central offices with nearly vacant employee parking lots in most of the nation’s towns, suburbs and urban districts, and so on. The cost of this massive capital base is recovered according to insanely long depreciation schedules and other gimmicks established by politicians serving on “expert” public utility commissions intent on keeping rates for basic local telephone service far below cost.
In other words, there are high fixed costs in the telecom business which do not vary in direct proportion to the number of consumers who choose to pay for telephone service in any given month or year. When millions of consumers cut the cord, there are far fewer customers to share these substantial fixed costs.
The legacy telephone network, which is extremely reliable but horribly inefficient, cannot be sustained indefinitely. Voice services will be delivered over broadband platforms along with data and video. Once networks are optimized for video, incidentally, voice may become a free app. “The challenge for the country,” according to the National Broadband Plan at page 59, “is to ensure that as [Internet Protocol]-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.”
States with legacy COLR requirements will have no choice but to act. Where consumers have a choice between voice service providers, no provider should be saddled with a monopoly-era COLR obligation.
If it is necessary to require an incumbent to provide service, the incumbent should be free to choose the technology(ies) it will use to serve its customers. It might be cheaper, for example, to serve consumers in some remote areas by satellite than by other means.
What about Susan Shaw cited in the Washington Post, the 53-year-old grandmother who is not interested in paying for cellular service, which would probably be costlier than the $12 a month she pays for her plain old phone?
Ms. Shaw’s landline phone service is heavily subsidized, costing far in excess of the $12 a month she pays. Telecom providers no longer have captive ratepayers. They are struggling to compete and cannot continue to act as private-sector tax collectors.
If $12 a month voice service for Ms. Shaw is a national priority, Congress should commit general tax revenues for that purpose. In that case, Congress might want to consider that the economics of fixed-line telephone service doesn’t compute anymore and there may be a range of more efficient alternatives.

Hance Haney

Director and Senior Fellow of the Technology & Democracy Project
Hance Haney served as Director and Senior Fellow of the Technology & Democracy Project at the Discovery Institute, in Washington, D.C. Haney spent ten years as an aide to former Senator Bob Packwood (OR), and advised him in his capacity as chairman of the Senate Communications Subcommittee during the deliberations leading to the Telecommunications Act of 1996. He subsequently held various positions with the United States Telecom Association and Qwest Communications. He earned a B.A. in history from Willamette University and a J.D. from Lewis and Clark Law School in Portland, Oregon.