Monday, October 13, 2008

Telco market segmentation has shrunk U.S. residential wireline service area map, setting stage for locals to take over last mile

The widespread prevalence of broadband black holes throughout the United States — which can be found in urban, suburban, semi-rural and rural areas — has brought to light a major change in the landscape of residential telecommunications service. In modern times, residential telecommunications has meant near universal service to all but the most remote areas.

With the advent of high speed Internet, the residential wireline market is no longer a single one but has been segmented by the telcos who maintain monopolistic control over their markets. Over the past 2-3 years, the boundaries of broadband black holes have hardened and delineate the two segments.

The more accurate description is the residential market hasn’t been so much segmented but rather shrunk. One only need compare the telcos’ maps of where they provide Plain Old Telephone Service (POTS) and areas where advanced Internet protocol-based services are offered to graphically see the shrinkage.

This is a permanent alteration of America’s telecommunications map. Despite telcos’ promises to “turn up” advanced services to these areas over the past decade, it’s now apparent that these statements are a time buying PR ploy to keep regulators and politicians at bay. Now the residential wireline telecommunications map is posed to shrink even further with the limited rollout of fiber to the home service by Verizon and AT&T’s technologically constrained deployment of its fiber to the node Project Lightspeed as both companies migrate from DSL.

This redrawing of America’s telecommunications map has major implications for so-called “last mile” residential wireline. Where they don’t provide last mile IP-based access, the telcos will instead serve as first and middle mile telecom providers. Small local telcos and the residents themselves will become the default last mile providers. Where it makes business sense, smaller telcos that specialize in serving communities will deploy fiber to the node and fiber to the home. Where the numbers don’t pencil out for the small telcos, the residents will deploy their own fiber and fund it though voluntary cooperatives and special taxing districts.

Over the next several years, fiber will come to be viewed as a utility not unlike electric power and water and will appear on residential MLS real estate listings. Properties that lack fiber optic access will be at a distinct disadvantage to those that have fiber, creating a strong incentive for property owners to work together to bring fiber to their neighborhoods to better capitalize on recovering real estate values following the current market downturn.

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