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Technology The Industry

Is Wireless a Substitute for Wireline?

English: A cell phone tower in Palatine, Illin...

Last week in GN Docket 13-5 the FCC issued an update that asked additional questions about its planned transition of the historic TDM telephone network to all-IP network. This docket asked for comments on several topics like having a trial for transitioning the TDM telephone network to all-IP, for having a trial to go to enhanced 911 and for making sure that a switch to IP would not adversely affect the nationwide telephone databases.

But the docket also asks for comments on whether the FCC should grant telephone companies the right to substitute wireless phones for wireline phones and abandon their copper network. The docket mentioned two companies that wanted to do this. For example, Verizon said they intend to put wireless on Fire Island off New York City as they rebuild it from the devastation of hurricane Sandy. But AT&T has told the FCC that they are going to request permission to replace “millions of current wireline customers, mostly in rural areas, with a wireless-only product”.

Let me explain what this means. There are now traditional-looking telephone sets that include a cellular receiver. To replace a wireline phone, the telephone company would cut the copper wires, and in place of your existing phones they would put one of these cellular handsets. They would not be making every family member get a cell phone and there would still be a telephone in the house that works on the cellular network.

This make good sense to me for Fire Island. It is mostly a summer resort and there are not many residents there in the winter. It’s a relatively small place and with one or two cell phone towers the whole island could have very good coverage. And if the cell phone tower is upgraded to 4G there would be pretty decent Internet speeds available, certainly much faster than DSL. One would have to also believe that the vast majority of visitors to the island bring along a cell phone when they visit and that there is not a giant demand for fixed phones any longer.

It is AT&T’s intentions, though, that bother me a lot. AT&T wants to go into the rural areas it serves and cut the copper and instead put in these same cellular-based phones. This is an entirely different situation than Fire Island.

Anybody who has spent time in rural areas like I do knows the frustration of walking around trying to find one bar of cellular service to make or receive a call. Cell phone coverage is so good today in urban areas that one forgets that this is not true in many places. I have a client, a consortium of towns and the rural areas of Sibley and Renville Counties in Minnesota. Let me talk about my experience in working with them as an example of why this is a bad idea.

My primary contact works in the small town of Winthrop. I have AT&T cellular service and when I visit him my cellphone basically will not work. I sometimes can move around and find one bar and get a call through, but I can’t coax the phone to get a data connection so that I can check email. And if you go west from Winthrop the coverage gets even worse. AT&T’s coverage maps show that they serve this area, but they really don’t. There are places in the east end of Sibley County that have decent coverage. But there are also plenty of farms where you can get coverage outdoors, but you can’t get coverage in the house.

The traditional cellular network was not built to serve people, but rather cars. Cell phone coverage is so ubiquitous now that we already forget that cellular minutes used to be very expensive, particularly when you roamed away from your home area. The cell phone network was mostly built along roads to take advantage of that roaming revenue stream. If you happen to live near to a tower you have pretty decent coverage. But you only need to go a few miles off the main highway to find zero bars.

And I use the Renville / Sibley County client as an example for a second reason. The people there want fiber – badly. They have been working on a plan for several years to get fiber to everybody in the area. The area is a typical farming community with small hub towns surrounded by farms. The towns have older cable systems and DSL and get broadband, although much slower than is available in the Twin Cities an hour to the east. But you don’t have to go very far outside of a town to get to where there is no broadband. Many people have tried satellite and found it too expensive and too slow. There are any homes still using dial-up, and this is not nearly as good as the dial-up most of you probably remember. This is dial-up delivered to farms on old long copper pairs. And it is to get access to an Internet that has migrated to video and heavy graphics. Dial-up is practically useless for anything other than reading email, as long as you don’t send or receive attachments.

Over 60% of the people in the rural areas in Renville and Sibley Counties have signed pledge cards to say that they would take service if fiber can be built to them. One would expect this would translate to at least a 70% penetration if fiber is built. They refer to the project locally as fiber-to-the farm. There has been a cooperative formed to look at ways to get fiber financed. And any financing is going to require local equity, meaning the people in the County are going to have to invest millions of their own dollars in the project – and they are certain they can raise that money. That is how much they want the fiber. And this same thing is true in rural areas all over the country. Most of rural America has been left behind and does not have the same access to the Internet that the rest of us take for granted.

AT&T’s idea is only going to work if they make a big investment in new rural cell towers. The current cell phone network in rural areas is not designed to do what they are proposing, even for delivering voice. And even if the existing rural cell phone towers are upgraded to 3G or 4G data (which almost none have been), most people live too far from the existing towers to get any practical use from cellular data. Cellular data speeds are a function of how close one is to the tower and, just like with DSL, the speeds drop off quickly as you get away from the hub.

I hope rural America notices this action at the FCC and files comments. Because as crappy as the rural copper wires are today, when the wireline network disappears many rural households are going to find themselves without telephone service. And forget about fast rural data. The AT&T plan is really just a plan for them to abandon and stop investing in rural communities.

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Improving Your Business The Industry

Current Access Disputes

We are seeing more access charge disputes today than we have ever seen. For those who don’t know about access charges they are the fees that an Interexchange Carrier (IXC, or long distance carrier) pays for accessing a local network. Most of the fees are quite miniscule at fractions of a penny per minute, but since there are still a lot of long distance minutes they add up to substantial payments from long distance carriers to LECs and CLECs.

It seems that a number of IXCs have recently adopted a policy of disputing access charges in the hopes of getting out of paying what they should pay. They know that some local telcos won’t dispute their claims even if the dispute is wrong. They also know that the dispute process can be painful and they hope to wear telcos down into making compromises just to get paid something. In my view some IXCs are being bad citizens in that they know they can strong-arm smaller telcos into accepting less than they should be paid.

Over the last year, the following are the sorts of disputes we have been seeing:

  • IXC’s are demanding a fully verifiable access bill. By that I mean that they expect every fact on the access bill to be correct. In the telephone industry there are several industry databases and the IXCs want every fact on the bill to match the information in these databases. This includes a lot of different facts from the names of switching offices (CLLI codes), mileages, billing percent splits between various carriers, the company that should be billing (OCNs), etc. There is nothing wrong with expecting the bills to be verifiable. But over time small errors creep into these databases as companies make changes to their networks. In the past the IXCs would see these kinds of issues as clerical issues and not substantive issues and they would often point them out and ask the carrier to fix them. But today the more aggressive carriers are refusing to pay bills until such problems are fixed.
  • NECA LATA issue. The NECA tariff which most small telephone companies still use for their Interstate tariff has a prohibition in it that says that a telco cannot carry their traffic to a tandem in a different LATA. This prohibition comes from 1984 when the RBOCs were all part of NECA for a few years. Judge Greene, in the order that divested the RBOCs from AT&T prohibited the RBOCs from carrying voice traffic to another part of the country, and this was left to the IXCs, being mostly AT&T then. However, when the RBOCs all left NECA nobody changed the language in the NECA tariff and so the prohibition is still there. There is no external law or rule that prohibits smaller telcos from carrying traffic to another LATA. Unfortunately, the language in a tariff overrides any industry rules, so if you use the NECA tariff and your tandem is in a different LATA your access bill can be successfully disputed. The only real fix for this is for NECA to fix their tariff or for you to use a different tariff.
  • Traffic and mileage pumping. Last year the FCC banned traffic and mileage pumping. Traffic pumping is when a carrier generates bogus traffic simply for the purposes of generating access charges. Mileage pumping is when a carrier rearranges their network to bill extra miles of transport for the purposes of billing more access. Since that ruling I have seen a number of disputes that accused telcos of one of these types of pumping, but in each case the accusation was not true. Since traffic pumping is now a bad word, I believe the IXCs are trying to scare telcos into settling rather than taking a claim of traffic pumping to a regulatory body. If you are accused of this please talk to us, because the chances are high that you are not in violation of this prohibition.

All of these issues can be a problem for a telco since the IXCs are in the driver’s seat. They can withhold payments for access which gives them the upper hand in a dispute. They know it is a costly process for telcos to appeal an access dispute to the next level, which is normally done by filing a complaint at the state Commission. I don’t mean to sound cynical, but I think there are ruthless people in the access departments of some IXCs that are getting bonuses for reducing access payments by any means they can find. Even scarier, there is now a whole industry of access consultants who get paid a percentage of any savings they can find in access bills. Such consultants are highly motivated to use any tactic in the book to get a payday.

And so my warning to LECs and CLECs is to get your access bills into the best shape they can be. Do a careful review between your access bills, your actual network and the industry databases (the LERG and Tariff 4). Eliminate any easy reason for the IXCs to single you out, because fighting your way out of access disputes can be costly and time-consuming. CCG has done hundreds of access charge reviews, so don’t hesitate to call us if you want to do this and need help.

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Improving Your Business The Industry

Who is Going to Pay for the IP Network?

Peninsular Telephone Company (Photo credit: Nick Suan)

Small telcos and most CLECs are waiting to see what will come from the changes due to converting to an all IP network for telephony. Today the telephony voice network utilizes TDM (time division multiplexing) technology that was originally developed for copper but that has been upgraded to use fiber. But the FCC has said that this old network is going to have to be upgraded to all-IP, meaning that voice will be carried by Ethernet similar to the way that data is transmitted.

I don’t think anybody is arguing that this kind of shift makes sense. IP trunking is far more efficient in terms of carrying more calls in the same amount of bandwidth. And a lot of companies have already implemented some IP trunking.

The important issue for small telcos and CLECs is how this transition is going to change their costs. In order to understand the possible change, let’s look at how voice traffic gets to and from small telcos and CLECs today.

  • Independent telephone companies connect with larger companies and neighboring companies by physical interconnection at mutual meetpoints. Historically, most of the meetpoints are located at the physical border between two neighboring telephone companies with each company owning the fiber and electronics in their own territory. And each telco is responsible for the costs of their portion of the network. Historically local calls have been exchanged for free in both directions and there are access charges in place for all telcos to get paid by the long distance carriers for using their network and facilities for long distance calls.
  • The rules governing CLECs were established by the Telecommunications Act of 1996. This Act laid forth the basic rule that a CLEC can interconnect with a telco network at any technically feasible point. This idea was fought hard by the large telcos who wanted CLECs to bring traffic to their tandems (regional hub offices). Once a CLEC has established a meetpoint, then it works pretty much the same as normal telco interconnection in that both parties are responsible for costs on their side of the interconnection. Sometimes local calls are interchanged for a fee and sometimes they are free (called bill and keep) and this is negotiated. The CLECs also bill access charges for carrying long distance calls.

There are a number of ways that IP trunking could be implemented, and each of them has financial consequences for small telcos and CLECs:

  • The IP network could be built to mimic the current PSTN. The routes would be roughly the same but the rules of interconnection would stay the same. But with IP trunking the network would be more efficient.
  • The large telcos could establish regional hubs and expect everybody else to somehow get their traffic to those locations. This would be a radical change for small telcos who would have to build or lease fiber from their rural location to the nearest regional hub. For CLECs this would completely undo the rules established by the Telecommunications Act of 1996 and would put all of the cost to get to the hubs onto them.
  • In the most extreme IP network there would be only a few large hubs to cover the whole US. This would be the most efficient in terms of the hubs, but it would require all telcos and CLECs to spend a lot of money to get their voice traffic to and from the hub.

Since I have been working in the industry the RBOCs (now AT&T and Verizon) have tried several times to put the burden and the cost of transporting calls onto the small telcos. But regulators have always stepped in to stop this because they realize that it would greatly jack up the cost of doing business in rural areas. I certainly hope that as we move to a more efficient network that we don’t end up breaking a system that is working well.

The downside to any plan that shifts cost to small telcos is that the cost of providing local and long distance service will increase in rural areas. The consequence of changing the CLEC rules will be less competition. The current interconnection and compensation rules have served the country well. Every caller benefits by having affordable rates to call to and from rural areas. And there is no doubt that higher communications cost would be a major hindrance to creating and keeping jobs in rural areas.

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Current News The Industry

Two Fiber Networks?

Image of Austin, Texas (Photo credit: Wikipedia)

The conventional wisdom in the industry is that two companies would never invest in side-by-side fiber networks to serve residential customers. I have had this conversation many times with clients who were planning to build a fiber network and who were worried about the response of the incumbent providers. Everyone has always believed that the first fiber builder wins because there is not enough margin in the residential market to support two fiber networks. AT&T has shown that conventional wisdom to be wrong by announcing that they will build a second fiber network in Austin as a counter to Google’s announcement to do the same.

This is not without precedent, although on a much smaller scale. The City of Monticello, Minnesota built a fiber network to pass every home and business in the City. The municipal fiber build was prompted by the fact that the City had some of the highest telecom rates in the country. Soon after the City built their network, TDS Telecom, the incumbent telephone company built a competing fiber network.

And as expected, both fiber providers are not faring well. After building fiber TDS decided to win back customers with an aggressive price war. Charter, the incumbent cable company also got into the price war fray. And so customers in Monticello are benefitting from a price war while all of the companies are underperforming.

It is fairly easy to understand TDS’s motivation for building the fiber network and for the price war. The company serves numerous other towns like Monticello and I see their response there as a clear warning to anybody else who is planning on overbuilding their serving territory. It is also clear that they are hoping that the City will give up and leave the fiber business.

And now we are going to see this scenario play out in the much bigger market of Austin. Google already overbuilt one AT&T market in Kansas City and one can easily envision Google overbuilding many other large cities. AT&T’s response in Austin is the same as TDS’s response in Monticello. AT&T has made it clear to Google and others that they are not going to side idly by and watch their major markets go to somebody else.

So it will be interesting to see the impact of AT&T’s announcement. It’s possible that the announcement will cause Google to pause and not build in Austin. Certainly they will not do as well as expected if there are two fiber networks. It’s also possible that both companies will build fiber and we will see side-by-side competition with two fiber networks and the cable company – the kind of competition we have never seen in a major city in the US.

But the real impact of AT&T’s announcement is going to be felt everywhere else. One has to wonder what kind of impact AT&T’s announcement will have on any company, Google included, who is contemplating building a fiber network in a large city. Google has very deep pockets and might proceed anyway, but almost any other company would not be able to afford the much lower returns that come with hard competition.

While this announcement might result in real competition for the citizens of Austin, it also might have the effect of stifling anybody else from trying to build fiber in a large City. This announcement could result in killing anybody from building fiber in large cities due to the fear of a similar reaction. While hearing about two companies wanting to provide gigabit fiber sounds like a good thing, the long-term consequence of this might mean less overbuilding, less fiber and less competition.

And I don’t know that AT&T had any choice. Their only other option was to watch their large markets go to an aggressive competitor. Nobody knows what Google plans to do, but some have speculated that they might build in most of the major cities. Now we’ll just have to watch this one play out, so pull up a chair. This should be interesting.

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Improving Your Business Technology The Industry

HD Voice

A spectrogram (0-5000 Hz) of the sentence “it’s all Greek to me” spoken by a female voice (Image:en-us-it’s_all_Greek_to_me.ogg). (Photo credit: Wikipedia)

HD voice (or wideband audio) is a technology that delivers the full frequency range of the human voice.  Traditional telephony has delivered a narrowband voice transmission and only transmitted sounds between 300 Hz and 3.4 kHz. However, the human voice extends between 80 Hz and 14 kHz, so traditional telephone has chopped off parts of every voice transmission.

The range of frequency was curtailed for traditional telephony based upon the limited bandwidth available for transmitting voice calls over a twisted copper pair. But voice that is sent over an IP path does not have those limitations and can send the full range of the human voice.

There has been an industry standard for wideband voice since 1987. However, until recently the only uses of the standard were in high-end video conferencing systems and for transmitting sports announcers back to the home station for rebroadcast.

But the industry is starting to use the HD voice protocol for calls made over VoIP. For example, Skype and some other PC-to-PC voice providers use the full HD voice bandwidth and the higher quality of the call can be experienced by a caller using a high-quality headset or handset. These same calls don’t sound better when listened to on a standard phone due to limitations in the speakers. There are also a number of vendors offering wideband telephones such as Avaya, Cisco, Grandstream, Gigaset, Polycom and others. These sets are capable of both sending and receiving a wideband voice signal, but the phones at both ends must be wideband capable to engage in an HD quality call.

So what are the business opportunities with HD Voice? Businesses are interested in having high-quality calls, particularly in conference rooms, noisy areas and other places where the quality can make a difference. The business opportunity is to make the phones available to businesses that are served with IP voice paths. HD Voice can then be sold as an add-on feature or as a more expensive voice line. A company that wants the higher quality calling is a great candidate for moving off of traditional TDM services onto VoIP, IP Centrex or other IP voice solution.

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Improving Your Business The Industry

Should You Become an MVNO?

This article compares the price of US cell phone plans to those around the world. It shows that the basic packages from the large US providers are in some cases twice as expensive as in other countries.

The small oligopoly of nationwide carriers, being AT&T, Verizon, Sprint and T-Mobile, have no incentive to lower prices. The only thing that will get them to come down in price would be competition or some sort of regulatory action.

The large carriers have created an opportunity for some competition against their products by selling bulk minutes, data and messaging. Companies that buy these bulk minutes are known as MVNOs (Mobile Virtual Network Operators). There are scores of MVNO providers in the country with the largest ones listed here.

The three original MVNOs are TracPhone, Virgin and Boost and who still had over half of the pre-paid cellular phone business in 2012. However, note that Sprint recently bought Virgin and Boost, so perhaps part of their strategy is to create sub-markets and then gobble them up to make more profit.

MVNOs have various marketing strategies:

  • Republic relies on shunting a lot of traffic to WiFi which greatly lowers their costs.
  • Ting lets customers design their own rate plan.
  • Kajeet has plans for kids that are parent-controlled.
  • Solavei uses multi-level marketing similar to Amway.
  • Voyager Mobile competes on price and is selling very low-cost plans.

If your carrier business already has a loyal customer base you should consider becoming an MVNO. Your loyalty will bring you customers, and your existing customers will appreciate being able to save money on cell phones while buying from somebody they trust. As long as you do it smartly there are significant profits to be made in the MVNO business. All that is really needed is having good existing cell phone coverage in your area and the desire to expand your product line.

CCG can help you get into the MVNO business. We can assist you with finding a good deal on bulk minutes, help you design products and prices, help you create a business plan, and help you with technical strategies such as a handphone strategy, and using WiFi to lower costs.

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Current News Regulation - What is it Good For?

Kansas Deregulation

On March 27 a bill passed (HB 2201) the Kansas Senate that largely deregulated telephone companies in Kansas from being the carrier of last resort. The bill passed the Senate by 36 – 4 and passed in the House by 118 – 1. In the past telephone companies were required to provide telephone service to most customers who wanted service, with some limitations that applied to extremely rural customers. But the new bill provides a host of ways that can excuse a phone company from providing service.

The bill applies to all regulated telephone companies, but also to a lot of other companies that provide telephone service like cable companies and CLECs.

“I think we’re at the point where we can take one of our largest carriers (AT&T) and treat them as if they’re a wireless carrier or cable carrier,” said Sen. Pat Apple, the chairman of the Senate Utilities Committee.

House Bill No. 2201 (click to open .pdf) is the Senate-approved version of the bill. Since the Senate made changes it will have to return to the House for final approval or else go to a House-Senate conference committee if the House doesn’t accept the Senate’s changes.

It’s unclear how the bill might have changed the role of the Kansas Corporation Commission (KCC) who currently regulates telephone companies. Currently the KCC has the authority to ‘prevent fraud’ but the bill changes that authority to ‘investigate fraud’. It’s not clear if the KCC will have any authority to affect the behavior of a badly performing telecom provider, as is already the case with cellular companies today.

The bill also shrinks the Kansas Universal Fund, which is a pool of money collected from telephone customers in the state and that is used to support rural telephony.

The bill was originally authored by AT&T but was presented to the legislation with a united front by most of the carriers in the state. AT&T has lobbied for similar legislation in many other states. While Kansas is now the first state to effectively remove carrier-of-last-resort obligations, one would expect this to happen in other states. Telephone subscribers have been steadily dropping everywhere as consumers have shifted to cell phones and to VoIP carriers for their telephone usage.