USF reform alone won't achieve universal U.S. broadband

Just as the U.S. Federal Communications Commission set a date for the end of analog broadcast television earlier this year as TV signals went digital, it should also establish a sunset date for the legacy Publicly Switched Telephone Network (PSTN), AT&T asserted in a December 21 filing with the FCC.

The business model for the PSTN -- a proprietary network comprised of central office switches, amplifiers and copper cable plant designed to deliver what's known as plain old telephone service -- POTS -- is in a death spiral as the number of people shutting off their landline voice service in favor of wireless and Voice Over Internet Protocol (VOIP) services has accelerated in recent years, AT&T notes. In the meantime, the telco stated, the FCC should modernize its regulations to ensure an orderly transition from the PSTN to an Internet Protocol (IP) based system, taking full regulatory control and ending state oversight authority originally established for regulating POTS.

However, legacy PSTN/POTS isn't alone in suffering from serious business model problems. So does the IP-based model that is the future of telecommunications. The reason: what AT&T describes as the "enormous" amount of capital necessary to complete the build out of required infrastructure to ensure all Americans have access to IP-based services just as basic telephone service is nearly universal. In its filing, AT&T concedes eight to ten percent of American households lack access to broadband, although another estimate released in October placed the figure higher at 12 percent, including even spotty access in major metropolitan areas.

In order to allow telcos to direct more capital investment to building out broadband infrastructure, AT&T proposes the FCC scrap rules requiring telcos to provide POTS so they can redirect funds to upgraded infrastructure capable of delivering IP-based services. "The legacy PSTN network – which is rapidly hemorrhaging customers and revenue – is now diverting much needed funds from investments in broadband networks," AT&T states in its filing.

AT&T also wants the Universal Service Fund (USF) -- created to subsidize the cost of providing POTS in high cost areas -- retasked to do the same for IP-based services. Doing so would help achieve the Obama administration's goal of broadband access for all Americans, according to AT&T.

But there's a difference between USF subsidies for voice telephone service and IP-based services. Deployment and adoption of basic phone service played out over decades. By contrast, there's a huge reservoir of pent up demand for broadband AT&T and other big telcos assured would be offered to all U.S. households when the Telecommunications Act of 1996 was enacted providing telcos tax breaks and other incentives intended to pave the way for them to universally deploy fiber-delivered telecommunications services by 2006. Didn't happen, obviously.

The FCC and other policymakers should keep this history and differences in demand between POTS and IP-based services in mind. Reforming the USF isn't likely to be the sole solution to remedy market failure for IP-based services. They must also encourage alternative business models such as open access fiber networks owned by local governments and telecom cooperatives through subsidies, low cost loans and tax incentives.