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FCC again balks on telephone network shutdown

<b>commentary</b> The remaining wireline carriers want to speed up the transition to native IP networks, an investment that has the added bonus of ending the digital divide once and for all. So why won't the FCC let them do it?

Larry Downes
Larry Downes is an author and project director at the Georgetown Center for Business and Public Policy. His new book, with Paul Nunes, is “Big Bang Disruption: Strategy in the Age of Devastating Innovation.” Previous books include the best-selling “Unleashing the Killer App: Digital Strategies for Market Dominance.”
Larry Downes
8 min read

Six months after wireline telephone operators and trade groups asked the Federal Communications Commission for permission to begin shutting down their aging switched networks, the agency responded late Friday, calling for further study.

In a public notice (PDF) issued by an agency task force created in December 2012, the FCC reiterated the importance of accelerating the transition from switched networks to native IP infrastructure. But rather than approving limited trials to test technical and regulatory obstacles to a full conversion, the agency instead raised more questions about the trials and called for more rounds of comments.

The task force also indicated that the agency was only considering limited trials focused on testing voice over IP (VoIP) interconnection, next-generation 911 services, and the potential for moving some customers in very remote rural and mountain regions from aging copper networks to mobile broadband service.

The notice was disappointing to advocates who see the IP transition as a potential catalyst in connecting more Americans to the broadband ecosystem, a goal far more likely with the switched network definitively shut off in favor of native IP technology.

According to Fred Campbell of the Competitive Enterprise Institute and a former bureau chief at the FCC, Friday's notice is "more likely to discourage future investment in Internet infrastructure than to accelerate it."

Though Campbell notes the importance of the three issues the task force appears willing to test, he says that trials for only these specific features would "yield little, if any, data about the challenges of shutting down the technologies used by the legacy telephone network."

In recent speeches, Blair Levin, an Aspen Institute fellow and executive director of the nonprofit Gig.U, likewise urged the FCC to do what it could to encourage a speedy transition. Wireline carriers, he said, have "asked for waivers to experiment with the transition in a couple of wire centers. My recommendation: Grant it today."

Levin's advice echoes the recommendation of the FCC's visionary 2010 National Broadband Plan , for which Levin served as executive director. Recognizing the value to consumers of better and cheaper IP-based technologies that combined voice, video and data traffic, the plan urged the agency to begin planning immediately for an orderly transition and shutdown of the switched telephone network.

Instead, the agency did nothing. Though outgoing FCC Chairman Julius Genachowski has repeatedly promoted the potential benefits of full IP transition, Friday's public notice stuck with his agency's depressing pattern of high-minded rhetoric followed by little to no action.

Not whether the transition will occur, but when
The FCC's repeated calls for more planning, more comments, and more study suggest an agency that is badly out of touch with reality. Americans have already made clear their sensible preference for better and cheaper IP networks. More and more homes are cutting the cord, abandoning obsolete wireline voice service in favor of integrated broadband from cable, fiber and mobile providers, or from over-the-top VoIP services including Google, Vonage, Skype and many others.

The abandonment of the century-old switched telephone network, in fact, is well under way and picking up speed. Where home dial-tone was once universal, today perhaps more than 50 percent of U.S. homes have dropped wireline service. According to estimates from the trade group U.S. Telecom, by the end of 2013 less than 30 percent of homes will rely on the switched network as their primary voice provider.

Eventually, perhaps soon, nearly every American will have made the leap to better and cheaper IP technologies, leaving the carriers to operate and maintain legacy wireline networks for only a few holdouts.

So what difference does it make if the FCC continues to drag its feet over shutting down the switched networks? Why do we even need trials when the transition is happening anyway, without any help from federal and state regulators?

The answer is that by doing nothing while an organic IP transition takes place, the FCC is skewing the process and needlessly slowing private investment.

By law, carriers cannot turn off the switched network without federal and perhaps state regulatory approval, even if superior alternatives are in place. As fewer customers subscribe to wireline services, the cost of maintaining aging copper and analog switches is going up dramatically, both in absolute terms and on a per-customer basis.

The poorer quality of switched networks also means degrading the quality of VoIP traffic, which must be "downconverted" when traveling even part-way over older networks.

More to the point, the longer the carriers are required to invest in the obsolete networks, the less capital budget is available to accelerate the replacement of that equipment with better and cheaper IP technologies, including fiber optics, digital switches, and upgrades to cellular networks. Both Verizon and AT&T are already spending billions on the transition. But they are also wasting billions more maintaining their switched networks (PDF).

Lessons from the digital TV transition
Ironically, by fretting over the IP transition, the FCC is risking its own admirable goal of getting more Americans onto broadband Internet services and closing the "digital divide."

That's because customer segments that are farthest behind in broadband adoption, according to the FCC's own data, are most likely to be relying on switched telephone networks as their only form of communication access. With an FCC mandate to offer every customer a competitively-priced IP voice alternative and a date certain for turning off the switched network, everyone will be migrated to a broadband connection that much sooner, including rural users, seniors, and the poor.


Getting these users onto IP networks sooner rather than later eliminates the need for expensive duplication of the obsolete switched infrastructure. It will also make it easier and less expensive for them to connect to other broadband services including video and Internet access.

In that sense, the IP transition would significantly counter the inertia that keeps 20 percent of American adults from joining the Internet. According to the Pew Internet Project, almost half of that group cite a lack of relevance to their needs, rather than cost, as their No. 1 reason not to connect.

But the FCC can't seem to get out of its own way, preferring to let nature take its course even when doing so leaves behind precisely those users about whom the agency insists it is most concerned.

This isn't the first time the FCC has demonstrated a failure of leadership in the face of a disruptive technology transformation. In many ways, the agency's dithering over the IP transition follows the playbook of the last transformation the agency oversaw, the switch in 2009 from analog to digital television.

There, too, the FCC was empowered by Congress to say if and when broadcasters could stop operating dual networks; one old and obsolete, the other better and cheaper and with greater potential for new services to be built on top of it. There, too, the FCC balked, worrying over details and, at the urging of Congress, repeatedly changing the shutdown date for analog transmission partly in response to logistical problems that could have easily been avoided.

The result was that by the time the switchover finally occurred, broadcast television had become trapped in a spiral of collapsing viewership from which it has never recovered. Today, less than 10 percent of Americans rely on over-the-air signals. The resulting loss of advertising revenue has made it difficult for broadcasters to take advantage of the flexibility of new digital equipment and new radio spectrum given to them as part of the transition.

The hope was that broadcasters would use the new technology to offer new services, including enhanced programming or even mobile broadband, introducing additional competition in those markets.

The change, however, came too late. By delaying the inevitable, the FCC unnecessarily and unintentionally crippled broadcasters. As local stations shut down or cut their programming, viewers have not more but fewer choices. That, of course, was precisely the opposite result the FCC held up then as now as its primary goal in setting the timing for the transition.

(The change from switched to IP-based telephone networks would be even easier to achieve than for digital television. While some outside copper wiring will be replaced with fiber optic cables, the IP transition will not require any change to home wiring. Nor will existing wired or mobile telephones need to be replaced or fitted with adapters, as was necessary for some older televisions.)

Why can't regulators pull the plug?
So why can't the agency act?

The FCC says it is being cautious, hoping to "gather a factual record to help determine what polices are appropriate to promote investment and innovation while protecting consumers, promoting competition, and ensuring that emerging all-Internet Protocol networks remain resilient." Friday's notice sought comment on 59 different issues, many not even raised in earlier rounds of filings.

But the continued hesitation over IP transition suggests a more disturbing motivation. Federal and state regulators are clearly anxious about their own role in a future all-IP world -- more concerned, it seems, than they are about the consumers they are pledged to protect.

That's because IP-based telephone service, including VoIP, is largely unregulated. And today, there are dozens if not hundreds of VoIP competitors, many offering their services for free.

Rivalry among IP voice providers, it seems, has done a far better job of disciplining the providers and encouraging competition than have the thousands of yellowing pages of detailed rules that still apply to the remaining wireline providers. The lightly regulated VoIP market seems to be working well, despite the absence of oversight.

That suggests that whatever level of continued federal and state regulation necessary after the shutdown of the switched telephone network, it will almost certainly be less than today. Agency staff will also need new skills. Regulators expert in the old technologies and the old rules that police them will be hard-pressed to make the transition to a broadband ecosystem with very different characteristics than today's regulated telephone industry.

For whatever reasons, in any event, the FCC is simply letting the IP transition happen without its input or guidance.

As a result, wireline telephone provides, like analog television stations before them, may be doomed to irrelevance by new products and services that get better and cheaper with every cycle of digital technology. By the time the agency is ready to act, it may once again be too late.

There's still time to avoid disaster, and to rescue the few remaining customers who can't make the leap to digital on their own. But only if the FCC snaps out of its own funk in time to help them.