AT&T is telling the FCC they face a "death spiral" on the wired side. The solution they suggest: change USF to give them $billions in subsidy. "To achieve the "universal broadband" - a good thing - AT&T is asking for "explicit support" (Page 19) for their lines. Nearly none of the AT&T lines currently get USF, so this would be a substantial additional subsidy to AT&T.
The FCC has long argued that the Bells generally don't need a USF subsidy, which makes sense to me. As things stand, they are among the most profitable companies in the world. If that's really about to change unless they get "explicit support", they need to amend their financial filings.
AT&T also wants to kill any state or federal laws allowing competitors access and want the feds to eliminate any state "service quality requirements." Above all, they cannot accept the obligation to provide service to all, generally considered a crucial policy goal. (USF funding is about "universal service" in name only. Far too much is just a government giveaway like tobacco subsidies, unrelated to real needs.) To make the argument, T tries to separate their "POTS" business from DSL, but that's disingenuous. They run over and support the same physical network. Switching, fiber, and even billing systems are already in place and today contribute relatively little to the cost. T runs wireline as one network and the costs are shared.
If AT&T is telling the truth in D.C. about how desperate their finances are on wireline, CFO Rich Lindner apparently committed securities fraud in the last quarterly investor call. Half of T's revenue remains wireline; problems there imply severe problems for the company finances. If that's so, the December dividend increase was wildly inappropriate and the dividend should be heavily cut or perhaps eliminated. S & P would almost certainly need to drop the company's credit rating. Their last investor presentation would be "wildly misleading." (Suggestion: ask yourself whether it's more likely that AT&T's CFO and financial filings are fraudulent or that they are stretching the truth at the FCC?)
AT&T reported for the last quarter
- " $13.9 billion free cash year to date versus $ 7.9 billion over first three quarters of 2008"
- "Directional 32.1% year-over-year growth in Improvement in Wireline Consumer Trends"
- "Stable Consolidated Margins [with] Wireline operating expenses down 2.8%"
- "Continuing cost-improvement opportunities, including areas such as organizational and systems integration, order and billing center consolidation"
- Free cash flow of $13 9 for the first three quarters and dividends paid of $7.3B
- "Stable margins – cost discipline across operations, wireline operating expenses down"
Three quarter capital expenditures totaled $11.6 billion versus $14.8 billion
Wireline revenues per household served increased 2.5 percent versus the year-earlier third quarter and were up 1.3 percent sequentially. This marked AT&T's seventh consecutive quarter with year-over-year growth in wireline consumer revenues per household.
As Craig Moffett points out in "End of the Line(s)" wireline is definitely hurting. But with $20B in cash flow annually, T is far from requiring a handout or a massive change in the regulations to favor them. Nor do they need this to cover the cost of extending broadband to the "unserved" beyond some fantasy figures. The September broadband plan estimate to bring ten megabits to 100% of the U.S. is $35B, of which the share covered by AT&T would be a total of perhaps $15B. Because the last 1% is truly remote and exceedingly expensive to serve, there's an emerging D.C. consensus that improved satellite is right for about 1%, which will cut that cost by a third. So the total cost to reach 99% of AT&T territory is about $10B, of which some will be covered by cable, profits from the customers reached, and government subsidy including the stimulus. Three months of AT&T cash flow - or 10% of three years spending - is enough for 99% coverage, without any additional subsidy. That's less than they have cut capex from 2008 to 2009, and clearly not an intolerable burden
Michael Balmoris of AT&T writes
"Our filing was the latest in a series of filings we’ve made over the last couple of years pointing out that the traditional POTS business model is in decline. We did not ask for any additional USF in this filing; that is not that same thing as saying our view is that no additional USF funding is needed to achieve whatever broadband goal the administration may announce in its plan.
The POTS model is a collective model for all LECs. Most of the remaining POTS lines are served by LECs for which the decline of the POTS model will be catastrophic. As consumers abandon POTS for other ways to communicate, the subsidies needed to maintain universal POTS will only increase, forcing carriers to spread the cost of providing POTS over a smaller customer base. At the same time, policy makers are intent on transforming the USF from a program that supports POTS to a program that supports broadband. We can continue to meet the goals of universal service in a broadband world, but not as quickly or as efficiently as possible if we don’t plan for the end of the POTS model. That is the point of our filing."
In addition to that note for the article, AT&T sent this as well
I. Our recent blog post:
http://attpublicpolicy.com/?p=134
DTV Deadline for POTS-Part 2
Posted by: Hank Hultquist on January 5, 2010 at 2:53 pm
As reported in my last blog, we recently filed comments in response to an FCC public notice on the transition from legacy networks and services to broadband. At the time, I had no idea how much interest this proceeding, and our filing, would generate. I came back from the holidays to find dozens of blog posts and articles reporting on, and in some cases “interpreting” our filing. While I understand that it might be fun to write about the phone company asking for permission to shut off telephone service, that wasn’t exactly the point of our filing.
Our filing was simply the latest in a series of filings (1, 2) that we’ve made over the last couple of years pointing out that the traditional POTS business model is in permanent and irreversible decline. AT&T is not alone in observing this trend. In fact, observers ranging from Stacey Higginbotham (Landlines are Obsolete in Less than a Generation) to the NYT (Continued decline of wireline number 3 top tech theme for 2010 have made the same point. Nor was AT&T the first to suggest a firm deadline for the transition.
Ordinarily this circumstance would be of little interest to regulators or policy wonks, but the POTS model is itself largely a creature of regulation. What I mean is that the business model of providing “basic local exchange service” (at a regulated price), plus “exchange access services” (at regulated prices), plus “long distance service” (at nationally averaged and integrated prices), plus (in some cases) explicit universal service subsidies, is at least as much the product of years of accumulated regulation as it is of supply and demand. The truth is that market forces alone would never have created this business model, and certainly would not have extended it to the low density areas that are the beneficiaries of the implicit and explicit subsidies inherent in the model.
Regulators and telephone companies cobbled the POTS model together as a way to achieve certain objectives, including universal service. And, I’m not saying that is a bad thing. But realize, as consumers abandon POTS for other ways to communicate, the subsidies needed to maintain universal POTS availability will only increase. This forces carriers to spread the cost of providing POTS over a smaller customer base, thus raising the average costs of serving those remaining POTS customers. And, that is a bad thing. At the same time, policy makers are intent on transforming the universal service fund from a program that supports POTS to a program that supports broadband. We believe that as a country we all can continue to meet the goals of universal service in a broadband world, but not as quickly or as efficiently as possible if we don’t plan for the end of the POTS model. And, that is the point of our filing.
Let’s be clear that this does not (and should not) mean that anyone will lose access to voice telephony. It simply means that in the future that capability will be provided over broadband IP networks, not over narrowband TDM networks. In our view, that future will be far less disruptive for all if we plan for the end of the POTS model than if we simply allow it to collapse.
II. These additional points:
1) We are not talking about ending POTS today---
Of course if subscribership stabilized at or near current levels, we would not be talking about the End of POTS. Our point is that the decline in POTS is not slowing down, and if anything is accelerating. Five or ten years from now these numbers are likely to look quite different. Our options are to wait and see if the declines continue, or to get started on a transition as soon as possible. Reasonable people might disagree about which course is more prudent, but as you look at our analysis, keep in mind that we are looking beyond current subscribership and cash flows, so your analysis and conclusions need to also look beyond current levels as well, and not just focus on current subscribership and cash flows, etc.
2) We have competing capex demands---
Your point about our cash flow being sufficient to fund build-out to unserved areas does not appear to recognize that there are competing capex demands, which have to compared based on expected ROI.
3) We are in no way asking for a bail out---
Your note assumes, and I'm not sure why, that we are asking for some sort of bail out. The POTS model is really a collective model for all LECs, not just about AT&T. Most of the remaining POTS lines are served by LECs for which the decline of the POTS model will be catastrophic.
4) Larger story/context of this filing---
Our filing was simply the latest in a series of filings that we’ve made over the last couple of years (http://fjallfoss.fcc.gov/ecfs/document/view?id=6519893810
and http://fjallfoss.fcc.gov/ecfs/document/view?id=7020351787
) pointing out that the traditional POTS business model is in permanent and irreversible decline. And, we were responding to a question (COMMENT SOUGHT ON TRANSITION FROM CIRCUIT-SWITCHED NETWORK TO ALL IP NETWORK) raised by the FCC (http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-09-2517A1.pdf
)
AT&T is not alone in observing this trend. In fact, observers ranging from Stacey Higginbotham (Landlines are Obsolete in Less than a Generation: http://gigaom.com/2009/03/02/landlines-are-obsolete-in-less-than-a-generation/
) to the NYT (continued decline of wireline number 3 top tech theme for 2010; (http://bits.blogs.nytimes.com/2010/01/01/five-web-predictions-for-2010/
) have made the same point. Nor was AT&T the first to suggest a firm deadline for the transition (link to OPASTCO filing
http://gullfoss2.fcc.gov/prod/ecfs/retrieve.cgi?native_or_pdf=pdf&id_document=7020040665
).
III. This Overall Point
We are not asking for any additional USF in this filing; that is not that same thing as saying our view is that no additional USF funding is needed to achieve whatever broadband goal the administration may announce in its plan.
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