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America Closing Down Its Copper Network - So What’s Next?

We have reported in the past on the rapid decline of the copper telecoms network in the USA. A decade ago BuddeComm predicted that it would be impossible to move two customer access networks in parallel towards the new fibre future, the one operated by the telcos and the other operated by the cable companies. At that stage we indicated that a possible outcome could be that the telcos would upgrade their networks to FttH and that the cable companies would become the key tenants on that network.

This however, turned out not to be the case. The telcos were late moving into broadband, while the cablecos embraced these new opportunities and rapidly obtained a 50%+ share in the broadband market. For a long time the market anticipated that the telcos would fight back and regain their share: this never happened and the cablecos were able to extend their lead further. With 90% cable penetration in the country they had a captive market.

Cablecos have also made considerable investments in network upgrades since 1996, including the rebuilding of around 1.6 million kilometres of cable plant. The vast majority of this infrastructure uses DOCSIS3.0 technology, which is far superior to the DSL products which telcos offer. The latest cable upgrade to DOCSIS3.1 promises a significant enhancement, which should be a great concern to telcos which, having failed to invest in FttH networks, are unable to compete with the technical ability of cable networks. Last year the telcos declared defeat and indicated that they would start closing down parts of the PSTN.

Interestingly, these developments align with the discussions I had over the last few years with the newly nominated FCC chairman Tom Wheeler. He is also on the public record on this issue, believing that the PSTN would end its life around 2018 and that the cable companies would become the key broadband providers. Of course, with his extensive background in the mobile industry he also sees a golden future for mobile communications, since these players would start taking over large parts of the PSTN, especially for telephony services.

One of the most serious problems that the telcos are facing is the escalating cost of maintaining copper plant—this is estimated to increase from $2.72 per line in 2007 to $17.50 by 2018. This rapid rise is a combination of real cost increases, because of the aging nature of the network, as also because telcos are actively reducing the number of users and so the cost has to be shared among fewer customers. Another reason for the rapid increase is that for decades past maintenance as been deferred.

Clearly the telcos are not closing down all of the PSTN willy-nilly. They do have good quality infrastructure that can deliver quality DSL services, and they will milk that infrastructure for as long as possible. This will specifically be targeted in areas where it is relatively cheaper to maintain the copper network. The main casualty here will be areas of rural America, where maintenance costs are higher and where there are relatively few competing cablecos operating. As a result, many of these telcos’ customers will only have mobile networks to access both voice and data services.

Another, perhaps even more serious issue—and one that the new FCC chair will have to face—is the rapid monopolization of the fixed broadband sector, with one cableco being the sole provider. These companies operate within franchises, so there is no competition between them. Currently there are no policies in place that regulate this situation, and with the American plutocracy in full force it will be interesting to see if any action will (or can) be taken by the FCC to rein in this emerging monopoly.

In the meantime the telcos are also under attack from companies such as Google: Google alone has refigured the landscape, having invested in FttH networks with great success. These companies’ high take-up rate is worrying both the telcos and the cable companies, who all charge exorbitantly high prices for services similar to the ones that Google now offers at close to half the price. They are increasingly working with municipalities around the country, many of whom either operate FttH networks or would like to do so but are blocked by court rulings forced upon them through the lobbying of vested telco and cable interests. Based on the strong American conviction that government (including local government) should not be involved in telecoms infrastructure, they get away with it. Increasingly however, citizens are asking why local councils can be involved in electricity infrastructure but not in telecoms infrastructure. There is a growing political groundswell that is providing municipalities with greater freedom to be involved in such infrastructure developments.

This could become a turning point in the American telecoms industry. Potentially it could also see the telcos returning to the market rather than retreating from it, this time starting from scratch by building new fibre infrastructure.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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Franchises Frank Bulk  –  May 8, 2013 7:33 PM

These companies operate within franchises, so there is no competition between them.

While many times it is exclusive, it isn’t always.  That’s up to the city councils to decide, so if this is an important issue to citizens, they can make their voice heard.

Councils Paul Budde  –  May 8, 2013 9:47 PM

You are right John but so far thuggish process have been severely hampered by the ongoing legal challenges from the vested interest trying to stop councils to do this. We need to see more people power in support of the councils. The good thing is that Washington is paying attention and want to see councils being able to take such initiatives.

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