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AT&T's Call to Sunset the PSTN

In a major development over the year-end holidays, AT&T filed comments with the FCC in which the carrier explicitly calls for the phasing out of the legacy Public Switched Telephone Network (PSTN) and the accompanying POTS service. AT&T pressed the commission for a date-certain, and warned that the current situation is "exacting a substantial toll on ILEC revenues."AT&T filed the comments in the FCC's proceedings on extension of broadband service to all Americans. The carrier linked the goal of universal broadband with the plight of the PSTN (emphasis added):

Due to technological advances, changes in consumer preference, and market forces, the question is when, not if, POTS service and the PSTN over which it is provided will become obsolete. In the meantime, however, the high costs associated with the maintenance and operation of the legacy network are diverting valuable resources, both public and private, that could be used to expand broadband access and to improve the quality of broadband service. It is for that reason that one of the most important steps the Commission can take to facilitate an orderly transition to an all-broadband communications infrastructure is to eliminate the regulatory requirements that prolong the life of POTS and the PSTN. A smooth transition to an all-broadband world is essential to attaining the goal of universal broadband service.

According to AT&T, broadband is currently available to 90% of households, and 66% of households subscribe to broadband. The carrier cited a number of further data points and made detailed arguments to support what it considers the urgency of its need to begin the process of getting out from under its requirements to deliver POTS:

* "Over 99% of Americans live in areas with cellular phone service, and approximately 86% of Americans subscribe to a wireless service. Many of these individuals see no reason to purchase landline service as well. Indeed, the most recent data show that more than 22% of households have 'cut the cord' entirely," the company wrote. Furthermore, "At least 18 million households currently use a VoIP service,18 and it is estimated that by 2010, cable companies alone will be providing VoIP to more than 24 million customers; by 2011, there may be up to 45 million total VoIP subscribers."

"In view of the range of alternatives for voice service--many of which offer distinct advantages over traditional landline service--it is not surprising that the POTS business model is in a precipitous decline. The numbers speak for themselves. Today, less than 20% of Americans rely exclusively on POTS for voice service. Approximately 25% of households have abandoned POTS altogether, and another 700,000 lines are being cut every month [their emphasis]."

* "Total interstate and intrastate switched access minutes have fallen by a staggering 42% from 2000 through 2008. Indeed, perhaps the clearest sign of the transformation away from POTS and towards a broadband future is that there are probably now more broadband connections than telephone lines in the United States.

"These trends are exacting a substantial toll on ILEC revenue from POTS service, which fell from $178.6 billion in 2000 to $130.8 billion in 2007, a 27% decrease." At the same time, "the average per-line cost of maintaining the legacy network has risen from $43 per year in 2003 to $52 per year today."

* This lost revenue, AT&T argues, only hampers the ILECs' ability to fund the cost of upgrading the public network for broadband. "Commission staff has estimated that it will take an investment of approximately $350 billion to make available 100 mbps broadband service to all American consumers.

"By one estimate, in 2008, traditional ILECs spent in the aggregate approximately $28 billion on capital expenditures, with over fifty percent of this sum (52.2%) going to the legacy network."

AT&T notes that this kind of dynamic can be dealt with in unregulated industries, where companies are free to stop producing products for which demand is declining, and shift the investment to the new, more desired products: "No one prevented horse-drawn carriage manufacturers from switching to automobiles the moment it became clear that the antecedent technology was obsolete. But many network operators do not have this luxury."

* AT&T uses the precedents of the analog-to-digital transitions in cellular networks and TV broadcast, to make the case that the FCC can and should set a date-certain for the transitioning away from the PSTN.

* The fate of universal service: "Customers who rely on universal service today should not be left behind as the nation moves to broadband and IP-based services. But the nation is moving, and the Commission must therefore act to ensure that universal service remains relevant and achievable," AT&T writes. However, AT&T insists that new funding mechanisms and service delivery models must be instituted for Universal Service.

The filing doesn't propose specific answers to most of the issues raised by AT&T; rather, the carrier calls on the FCC to issue a Notice of Proposed Rulemaking, to which AT&T would presumably respond with its specific proposals.

For the enterprise, there are of course many unanswered questions. AT&T doesn't specifically lay out what it means by "retiring" the PSTN. Would it decommission all its Class 5 switches on the date-certain? If so, what would be the implications for enterprises that still do use services based off of this infrastructure? A date-certain would obviously give the carriers plenty of leverage in negotiating with customers who need to migrate from these legacy services to next-gen infrastructure.

On the other hand, is AT&T only talking about a date-certain to transition the regulations that require them to deliver POTS/PSTN services? Could they choose to retain Class 5 switches beyond the date-certain in selected geographies where the combination of infrastructure amortization and residual POTS subscribership made such a retention economically attractive to the carrier?

That's just scratching the surface. As this process plays out, we'll see lots more. But it looks like 2010 could be the year we at least start talking about the end of the PSTN in a realistic way.