TELECOM Digest OnLine - Sorted: Pity the Poor Phone Company

Pity the Poor Phone Company

Scott Bradner (
Tue, 6 Dec 2005 10:42:44 -0600

This story appeared on Network World at

'Net Insider
Pity the poor telephone company?
By Scott Bradner, Network World, 12/05/05

From a distance it looks like a good time to be a traditional phone
company in the United States. The FCC has given these companies an
open license to exploit their dominant market positions. The
U.S. House and Senate are running down a path to empower them to
destroy the Internet. The International Telecommunication Union's
standards division is defining technology that will let phone
companies block "free" use of "their" networks by interlopers such as
Google and Vonage. Billions of dollars are being spent on takeovers
and being poured into deploying new video services. But maybe things
are not as rosy as they seem.

I'm writing this just as SBC's $16 billion takeover of AT&T has been
consummated, and as Verizon's $8.5 billion buyout of MCI is getting
the last of the state approvals. That is a lot of money being spent to
buy up failing long-distance companies just as the whole concept of
long-distance is in its dying days.

If Congress continues on the path it is on, we will soon get a new
telecom regime that will let the big telcos and cable companies block
third-party use of the Internet connections that their customers buy
from them, all in the name of protecting their networks and helping
law enforcement. Unless something drastic happens, this will destroy
the Internet, at least for most residential and small-business
users. But since most residential users think the Internet is just the
Web, most of them will not notice unless they have subscribed to
non-carrier VoIP services. Small-business owners are likely to notice
quite well their reduced options for alternate phone service.

At the same time, the technology that enables the phone companies to
offer extensive video services is well-enough developed for them to
start widespread deployment and thus have a hook into tens of billions
of dollars of cable TV revenue. Sounds like a great time to be a phone
company. But things may not be quite as great as they appear.

More and more, residential users are dumping their landline phones in
favor of cell phones. Once the cell-phone E911 service becomes
generally deployed, many more customers will follow them. The In-Stat
research group reports that close to 10% of the U.S. population
already uses a cell phone as their primary line, and that over half
are willing to consider the option. There goes the cream of the
residential phone business -- unless you happen to have a wireless
division. And even when that is the case, there is a lot of
competition, so the profits will be a lot less.

Businesses are moving in droves to VoIP, with ZDNet Research reporting
that 75% of them have tried it out and 75% of those who adopted it
like what they got. And there is no requirement that a business get
its VoIP from the carrier that provides its Internet connectivity or
even from a carrier at all.

Then there is the video dream. Verizon is spending billions of dollars
to bring fiber to the home so that it can offer what residential users
already have from cable TV and satellite companies -- hundreds of
channels with little on them and video-on-demand. The New York Times
reports that content owners want more from you phone companies than
they get from your competitors, and your competitors can always reduce
their fees to match anything you can do.

Maybe it's not a great time to be a phone company after all.

Disclaimer: It's (almost) always a great time for Harvard to be
Harvard, but the above muse is my own.

Bradner is a consultant with Harvard University's University
Information Systems. He can be reached at sob@sobcomcom.

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