Among the issues is setting a date for terminating the PSTN is ensuring there is virtually universal broadband service everywhere, since the IP alternatives will require broadband. There are lots of other issues, to be sure.
But many of the issues will involve the framework for handling “carrier of last resort issues” and how common carrier regulation is applied. In a market expected to feature multiple ubiquitous networks, should historic common carrier regulations be extended to other providers, or should less restrictive frameworks be used?
Beyond that, there are other issues, such as the financial backdrop against which regulations are applied. Universal service funding mechanisms, and high cost support, in turn tend to hinge on the amount of social surplus generated by the industry as a whole.
Once upon a time, high gross revenues and high profit margins made possible a fundning of USF from business customer services. Over the last few decades, that has changed, and funding has come to rely on per-line consumer funding, from both fixed network and mobile network services.
And there is not as much surplus as there once was. In fact, over time, all the mechanisms will likely have to rely on taxes of mobile customer services, rather than shrinking fixed network revenues.
In fact, one might plausibly argue that, in the future, taxes on broadband and mobile services will be the dominant funding sources, not fixed network voice services. On the surface, those might not be seen as issues.
You would be hard pressed to find a single quarter in any recent year when the likes of AT&T and Verizon Communications did not show steady revenue growth and relatively stable earnings, with the ability to pay dividends. That isn't to say all providers are in the same condition. From time to time, many providers have faced some distress.
But Craig Moffett, Bernstein Research analyst, has been a notable “bear” on business prospects for the large mobile service providers. He now calculates that AT&T and Verizon Wireless are not even earning a return above their cost of capital.
In other words, AT&T and Verizon now are already losing money, investing in networks and services that do not earn back the cost of the borrowed money driving the investments. But most of the problem comes from the wireline businesses, he argues.
AT&T and Verizon executives would disagree, of course. In part, Verizon argues, returns have been depressed recently because of heavy investment, both in the FiOS program and wireless upgrades, but the revenue impact of the sluggish economy. Over the long term, those issues will recede, Verizon argues.
One might argue that recent developments in the global telecom business suggest growing strains at the very least, non-viability of some business models, in some markets, and serious strain in others.
One might infer from the "wholesale only" broadband access models used in Singapore, Australia and New Zealand, that facilities-based "very high speed access" is not a business most providers can afford to be in.
Instead, networks providing that access, are a functional monopoly, too expensive for more than one provide to attempt.
In Europe, the European Commission seems seriously concerned that European facilities-based broadband providers might not be able to afford the next round of upgrades, and seem to be considering policies that would boost the financial return from new and massive investments.
Does anybody anymore seriously think global growth will be lead by anything other mobile services?
At some level, whether formally stated or not, the profitability of fixed networks will be an issue in future discussions of how to shut off the old PSTN. The current discussion within the European Community about the investment impact of “net neutrality” rules is not a new debate. In the wake of the passage of the Telecommunications Act of 1996, dominant U.S. fixed-line providers argued, successfully, that mandatory wholesale rules, providing deeply-discounted rates for wholesale customers, would severely discourage investment in optical facilities. And, in fact, Verizon's FiOS effort did not get into high gear until after the Federal Communications Commission approved such rules.
These days, the EC discussion revolves to a great extent around the impact “network neutrality” rules could have on incentives for broadband investment. Specifically, operators argue that restriction of services to “best effort only,” without the ability to create differentiated service plans involving quality of service measures, will be a significant disincentive to the high rates of investment EC officials would prefer to see.
Some will say the carriers are bluffing about requiring some path to revenue when investing in 100-Mbps or 1-Gbps access facilities. Some of us would disagree. The alternative is to invest in mobile facilities and applications instead.
In fact, some recent global estimates of market share suggest telcos globally are losing the consumer market share battle to cable companies. In fact, looking just at triple-play accounts, it appears cable operators have roughly 66 percent market share. In other words, telcos arguably are losing the market share battle in the consumer market.
The point is pretty simple. If it appears telcos are losing ground in the consumer market, but dominating and growing the mobile market, and if revenue potential in fixed line network services appears to be waning, at some point it will be a wise executive indeed who decides mobility is really where resources and effort ought to be placed.
Placing obstacles to a profitable return on massive new investments does not seem calculated to encourage operators to invest substantially more in fixed access networks.
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