February 2, 2009

Broadband Gains Don't Necessarily Mean Landline Losses

By Jim Barthold

A dark economy is reinforcing a push to better use existing resources within the telecommunications industry this year as it works to stem landline voice losses and increase its broadband customer base.

Executives' comments from AT&T and Verizon during annual earnings reports last week made it obvious that carriers no longer see themselves as phone companies; they're broadband providers who coincidentally offer voice service via either traditional POTS or VoIP. Executives from both carriers boasted of their strong wireless business; both crowed about increased "broadband" subscriber numbers, in Verizon's case with its FiOS fiber-to-the-premise network, and in AT&T's, U-Verse and a mix of 3G/4G broadband wireless. And both muttered about continuing "landline" losses that confusingly intermixed with voice subscriber losses.

Neither, however, publicly called out a resource that could at least bolster broadband numbers and help preserve existing landlines; re-purposing idle copper already in the field as subscribers increasingly abandon second and third lines and even start to move away from traditional POTS. Emerging technologies that bond copper can add value to these lines as a way to deliver high-speed DSL that competes with cable broadband.

"When (carriers) were building new homes in the ‘90s, and BellSouth I know for a fact did this, they automatically put three pairs to every house," said Teresa Mastrangelo, principal analyst for broadbandtrends.com, who did concede "there is not an excess amount of copper for everyone to be able to have bonded pairs."

That's part of the conundrum for the operators, said Mike Martin, director of product management for ADTRAN's carrier networks division: "It's not a ubiquitous solution or answer, and it's still a problem that carriers are somewhat struggling with. How do you go out and sell it without knowing that you can deliver it?"

Since carriers are hemorrhaging voice customers, bonding might be a way to shore up the business while building the ultimate fiber solution to cable.

"The carriers are looking at bonding as a way to help offset the talk on DOCSIS 3.0," Martin said. "Some of the MSOs are offering 50 meg service already, and you'll never get there on a single DSL pair unless you have a very, very short loop and you have VDSL2 on it."

Bonding is a Band-Aid; it's not a tourniquet.

"You can get to ADSL2+ and realistically get between 40 and 45 megs of throughput on a decent-sized loop," he said. "Our customers are talking to us about it and we offer it."

Again, while attractive, doesn't apply everywhere.

"Different marketplaces and even different neighborhoods provide different opportunities. We're utilizing all the resources available to us and bonding copper is certainly one of those," said Dan Alcazar, consumer marketing office of EMBARQ, which differs from AT&T and Verizon primarily because it's a wireline carrier without a wireless arm.

When subs disconnect voice services, EMBARQ howls in enough pain that it's actually quietly testing naked DSL-an almost verboten subject among carriers.

"The industry makes its money on voice. DSL is the future revenue and margin but today the industry is run on voice, and it will remain the vast majority of our money," Alcazar said. "We're at this moment of transition where we're shifting from a wireline voice-dominated industry to one that is bifurcating along the lines of either high-speed or wireless. All three of those products need to be thought about simultaneously but we are clearly shifting from one to the other."

AT&T and Verizon executives gave the impression that there really are only two viable options: high-speed fiber-based broadband (FiOS) and broadband wireless (AT&T).

"It's not whether you can get from 10 to 12 megabits but whether it's mobile or not," said Randall Stephenson, chairman/CEO/president of AT&T. "Can you access WiFi hotspots all over? Can you get 3G connectivity and have a mobile experience? As we're trying to get more bandwidth we're also wanting to ensure it's a mobile experience to our broadband customers."

Mobile needn't be the end game, said Mastrangelo.

"Operators can stem the loss of lines if they were to make them more valuable, which they've done zero to make happen," she said. "They've done nothing to take advantage of Unified Communications applications and different things you can do to make your fixed line more valuable. They just fail to do that in this country. It's almost like they don't care; it's arrogance."

Like cable operators talking about customer service, however, the carriers spin a good line.

"We've long since reached the conclusion that if we're unable to convince a customer to hold onto their fixed wireline phone, we still want to have some revenue stream coming in for voice service," said Bill Kula, a Verizon spokesman. "We're able to do that by offering a range of bundles that allow a customer to mix and match; combine wireless voice with wired Internet and TV service."

Kula was basically re-stating what Doreen Tobin, the carrier's executive vice president and CFO said during the company's earnings call: Bundles hold wireline voice customers, but FiOS, not copper and not DSL, is the glue that holds the bundles together.

"On the traditional access line side of the business, we saw some sequential improvement in retail residential primary lines, which were down by 460,000. Total switched access lines declined by 911,000. We continue to see an increasing correlation between our triple-play availability and line retention," she said.

Those line loss numbers would choke a dragon, but they left Tobin undaunted.

"As FiOS continues to scale and we expand triple-play coverage, we are optimistic ... and we see a more meaningful improvement in overall line loss trends," she said.

The landline business continues to slide more precariously than a novice driver in a Dallas ice storm, and "it is not at the point where we as an industry think things have bottomed out; we have further to go," said Alcazar. "What the bottom looks like is unclear and will be determined by what the economy holds ... and what features and relevant technology either wireline or wireless companies can bring to the table."

Bonded copper might be the safety net that at least softens the fall.

"Carriers recognize that they have to stem their line loss, and they also recognize that their broadband customers are going to be where the lifeline's going to be in the future," said Martin. "Bonded copper technology is absolutely something that every one of our customers is talking to us about."

 

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