Wednesday, March 12, 2008

Telco regulators should prohibit passive "soft" divestiture and require companies to upgrade or sell off assets

The two major telcos in the United States, AT&T and Verizon, have segmented their residential wire line markets into three groups.

The first segment is where the telcos are deploying their state-of-the-art infrastructure. For AT&T, it’s the company’s hybrid fiber-copper based VDSL “Project Lightspeed” rollout in support of its Internet/Video/Voice “triple play” U-Verse product bundle. For Verizon, it’s the telco’s FiOS fiber to the premises infrastructure that like U-Verse offers the triple play bundle but with far greater bandwidth and expansion capacity. This “prime” segment comprises only a small percentage of each company’s total residential lines.

The second residential wire line segment features “double play” offerings of broadband Internet and traditional analog POTS (plain old telephone service) delivered over copper cable infrastructure. Broadband is provided by legacy ADSL central office DSLAMs and remote terminals. This “preferred” segment comprises the bulk of the two telcos’ residential customer base.

Which brings us to the third and last market segment. Call it the “non preferred” orphan segment. It is in the words of one independent ISP being kept on life support, serviced only when necessary by makeshift “bubble gum and bailing wire” repairs. Traditional voice service can be spotty, particularly when it rains and afterwards when the sun expands and dries aging aerial cables. Broadband Internet access is nonexistent and residential customers are stuck using early 1990s era dial up technology. In many cases, DSL remote terminals have been installed but were never activated and are now considered obsolete, destined never to be “turned up” in telco parlance. While comprising about 20 percent of the telcos’ residential subscriber base, this third segment accounts for the bulk of repair costs and generates the most complaints to regulators.

This segment has been divested by the telcos, either actively or passively. An example of active divestiture is Verizon’s sale of large portions of its residential territory in several New England states including Maine and Vermont. AT&T, by contrast, has chosen the route of passive or "soft" divestiture. AT&T doesn’t want to service its tertiary residential market segment or upgrade the infrastructure within it in order to offer more services, but the company hasn’t made any efforts to spin off portions of it either. Consequently, the millions of unfortunate residents of this market segment are stuck in telecommunications limbo land where time stands still and the calendar still reads 1991.

Since these companies typically hold monopolistic positions in their third and least desired segments, regulators should prohibit the neglectful passive divestiture practiced most prominently by AT&T and give the telcos a choice: bring your services up to modern standards or sell and get out and make way for other providers who can offer better services.

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