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

November 13, 2012 , , ,

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.

About Harold Feld

Harold Feld is Public Knowledge’s Senior Vice President and author of “The Case for the Digital Platform Act,” a guide to what government can do to preserve competition and empower individual users in the huge swath of our economy now referred to as “Big Tech.” Former FCC Chairman Tom Wheeler described this book as, “[...] a tour de force of the issues raised by the digital economy and internet capitalism.” For more than 20 years, Feld has practiced law at the intersection of technology, broadband, and media policy in both the private sector and in the public interest community. Feld has an undergraduate degree from Princeton University, a law degree from Boston University, and clerked for the D.C. Court of Appeals. Feld also writes “Tales of the Sausage Factory,” a progressive blog on media and telecom policy. In 2007, Illinois Senator Dick Durbin praised him and his blog for “[doing] a lot of great work helping people understand how FCC decisions affect people and communities on the ground.”