From POTS to…

Late in 2012, AT&T proposed that the U.S. telephone network is dying, replaced by the Internet – and Federal Communications Commission rules underpinning that old order should expire with it. AT&T on November 7 said it would invest $14 billion to build more high-speed Internet connections over wires and wireless infrastructure, but tied that planned spending to a request for regulatory changes. Generally, AT&T wants regulators to set a date for extinguishing the requirement to maintain the old network and to declare the IP network is “subject to minimal regulation only at the federal level.” Specifically, AT&T has petitioned the FCC to oversee some trials of retiring the “plain old telephone system” (POTS) and transitioning to networks running Internet protocols (IP) in order to “capture and address the operational, technical and policy issues that necessarily will arise.” This week, we got a taste of how other stakeholders think about the proposed transition.

The debate over whether rules of the copper-line era should apply to today’s IP networks centers on the changes in an industry whose service for decades was guaranteed by government rules, rather than driven by competition. AT&T, Verizon and other local landline carriers are required to offer service to every residence and must meet standards for providing a quick dial tone, a sure connection and resiliency during storms and power outages. Newer competitors offering phone service over IP networks don’t have to abide by the same rules.

In a filing at the FCC this week, AT&T framed the debate as not the beginning of the transition, but the end of it – “transitioning the last adopters,” if you will. The transition, AT&T argues, is well under way: Traditional wire-line service was in 95 percent of U.S. households in 2000 and less than 40 percent in 2011, as fiber-optic lines have replaced copper and many households dropped landlines altogether, according to an analysis by USTelecom, the lobbying group for large carriers. People are moving to bundling home telephone service with broadband and television services offered by cable companies – or just relying on mobile telephone service.

AT&T also makes an economic argument: it is critically important to maximize the amount of private capital that goes into the construction of broadband infrastructure. “We know from experience,” writes AT&T’s Bob Quinn, “that universal service dollars are insufficient to completely close the broadband gap identified in the National Broadband Plan. We also know that as consumers and subsidies move away from POTS infrastructure into broadband, the burden of retaining dual infrastructures is unsustainable. The National Broadband Plan examined this dilemma at length and concluded that to ‘require certain carriers to maintain POTS – a requirement that is not sustainable – [would] lead to investments in assets that could be stranded.’ To put it another way – any dollar spent on maintaining a POTS infrastructure is a dollar not being spent on broadband.”

AT&T says it comes down to two questions: 1) does the FCC have the authority to remove the legal and regulatory impediments to retire legacy technology?; and 2) doesn’t it make sense to do a limited geographic trial of this transition to put in place the framework that allows us to complete this transition in the least disruptive way possible?

Verizon filed comments at the FCC with recommendations for how the FCC should approach the transition. Verizon suggests that the FCC:

• focus on maximizing the ability of market forces to drive innovation and investment in IP and broadband and not import its legacy regulatory framework,
• remove those existing regulations or ambiguities in the rules that can hamper technology transitions, distort competition, or more generally have outlived their usefulness:
• confirm that all IP-enabled services are inherently interstate,
• get rid of the outdated requirement to provide a
• 64 kbps voice-grade channel over fiber loops in areas where copper has been retired, and
• get rid of Eligible Telecommunications Carrier (“ETC”) universal service requirements and parallel state requirements in areas where providers do not receive funding to provide service.

Verizon also suggests the FCC should streamline or eliminate other regulations that no longer serve a useful purpose, such as rules governing network changes, service entry and exit approval requirements, and equal access obligations.

The Telecommunications Industry Association (TIA), the association representing the manufacturers and suppliers of high-tech communications networks, filed comments at the FCC in support of AT&T’s petition. "The Commission should be applauded for the foresight to ensure that the inevitable transition of legacy transmission platforms and technologies to Internet Protocol networks occurs in an organized and orderly fashion. Facilitating this transition is one of the most significant steps the Commission can take to affirmatively help promote broadband deployment and infrastructure investment while serving the public interest." Regarding AT&T's trial proposal, TIA said, "AT&T's common sense proposal of discrete [POTS]-to-IP trials is a sensible approach that will encourage all parties to work collaboratively to find solutions."

The Minority Media & Telecommunications Council, NAACP, RainbowPUSH and other minority advocates said they supported the market test and a dialog about the transition to IP. They called the proposed trials' incremental and geographically limited approach a sensible method of determining how to undertake this transition. But they reserved judgment on AT&T's specific recommendations.

Comptel, a Washington-based trade group of smaller carriers, argues that the change in network architecture shouldn’t allow the large phone companies to escape requirements, called interconnection, that they provide connections for competing carriers to reach customers. “It’s just the transition of the network from one technology to another,” said Comptel chief executive Jerry James. “The network’s been digitized for decades. AT&T is just using the transition as another opportunity to say, ‘We want to get out from under regulation.’” AT&T counters that rules that require companies to serve all customers in an area, often at regulated rates, stifle investment in all-IP networks. The company said wireless service will reach customers who aren’t tied into its new high-speed landlines. Comptel said, in its comments filed at the FCC this week, that if the FCC backs AT&T's petition, it will be read as a rejection of competition, competitive choice for customers and fair market pricing for interconnection and last mile access.

Free Press warned the FCC, “AT&T is trying to push the Commission into a state of veritable regulatory limbo, by removing the last vestige of any federal or state authority to protect consumers in an increasingly consolidated communications market. Because AT&T has previously convinced the Commission that the mere use of IP places a service outside of the laws governing two-way communications networks, the otherwise unremarkable progression of telecom technology from circuit to packet switching could now, under the Commission’s current framework, result in a state of total deregulation.”

Free Press argues that the AT&T petition is tantamount to asking the FCC to end all Title II (that is – common carrier) oversight of telecommunications. Free Press believes AT&T confuses “content with transmission, IP with the Internet, fiber with information service, telephony with telecommunications, and monopolies with common carriers.” Free Press welcomes a debate about the transition to a 21st century network and the appropriate regulatory regime that continues to ensure interconnection, promote universal service and protect consumer rights. The risks, Free Press points out, is that the transition leads to a regulatory regime with no protections from price gouging, no accountability for service outages, no consumer protections from cramming and slamming, and no reliable access to emergency services, no service at all for millions and, possibly, “rolling localized Internet blackouts as intercarrier disputes pop up, which will be “resolved” by higher prices paid to dominant carriers like AT&T.”

Free Press urges the FCC to “confront lingering and politically difficult questions concerning its authority over next-generation networks.” This would mean re-examination of appropriate regulatory classifications of carriers’ services.

AT&T’s decision to upgrade its network, argues Public Knowledge, has enormous implications for every aspect of our voice communication system in the country. In its comments at the FCC, Public Knowledge offered what it calls the “Five Fundamentals” Framework:

1. Service to All Americans: The Commission must ensure the benefits of these technologies flow to all Americans - regardless of race, color, religion, national origin or sex. The U.S. must not be the first industrialized nation to retreat from the goal of achieving 100% penetration of basic voice service.
2. Interconnection and Competition: Competing networks must continue to accept each other’s traffic and terminate each other’s calls in a manner that both preserves call quality throughout the country and actively promotes a robust and competitive environment. In particular, subscribers to different networks must not find themselves the victims of “peering disputes” that cut off communications and vital services.
3. Consumer Protection: Competition does not always ensure consumer protection. The Commission must ensure that consumers are protected - including effective recourse for the timely resolution of complaints – throughout and after the IP transition.
4. Network Reliability: We must be able to rely on the phone network to function consistently and reliably. Recent events like Hurricane Sandy show that an IP based infrastructure may not be as reliable today as we had hoped. In the future, the Commission must ensure that even in a natural disaster, consumers will be able to make phone calls and stay connected.
5. Public Safety: The transition to an IP based infrastructure must facilitate emergency communications. Consumers should be able to call 9-1-1 in any emergency with confidence that the call will be connected.

Although there’s little consensus on how the POTS-to-IP transition should take place, there is general agreement that now is the time for regulators time to decide just what the transition to an Internet-protocol based system means for bedrock principles like interconnection, universal service, consumer rights and emergency service. We’ll be tracking in Headlines as the debate ripens.