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Pity the poor telephone company?


By Scott Bradner


From a distance it looks like a good time to be a traditional phone company in the US.  The FCC has given them an open license to exploit their dominant market positions.  The US House and Senate are running down a path to empower them to destroy the Internet.  The ITU-T is defining technology that will let them block "free" use of "their" networks by interlopers like Google and Vonage.  Billions of dollars are being spent on takeovers and being pored into deploying new video services.  But maybe things are not as rosy as they seem.


I'm writing this just as SBC's $16 billion takeover of AT&T has been consummated and as Verizon's $8.5 billion takeover of MCI is getting the last of the state approvals.  That is a lot of money being spent to buy up failing long distance companies just as the whole concept of long distance is in its dying days.


If the US House and Senate continue on the paths they are on we will soon get a new telecommunications regime that will let the big telcos and cable companies block 3rd party use of the Internet connections that their customers buy from them, all in the name of protecting their networks and of helping law enforcement.  Unless something drastic happens this will destroy the Internet, at least for most residential and small business users.  But since most residential users think the Internet is just the web, most of them will not notice unless they have subscribed to non-carrier VoIP services.  Small business owners are likely to notice quite well their reduced options for alternate phone service.


At the same time the technology that enables the phone companies to offer extensive video services is well enough developed for them to start widespread deployment and, thus, have a hook into the tens of billions of dollars of cable TV revenue. 


Yup - sounds like a great time to be a phone company.  But things may not be quite a great as they appear. 


More and more residential users are dumping their landline phones and using cell phones instead.  Once the cell phone E911 service becomes generally deployed many more will follow them.  The In-Stat research group reports that close to 10% of the US population already uses a cell phone as their primary line and that over half are willing to consider the option.  There goes the cream of the residential phone business -- unless you happen to have a wireless division and even when that is the case there is a lot of competition so the profits will be a lot less.


Business are moving in droves to VoIP with ZDNet Research reporting that 75% of them having tried it out and that 75% of those who adopted it like what they got.  And there is no requirement that a business get its VoIP from the carrier that provides its Internet connectivity or even from a carrier at all.


Then there is the video dream.  Verizon is spending billions to bring fiber to the home so that they can offer what the residential users already have from the cable TV and satellite companies - 100s of channels with little on them and video on demand.  But the NY Times reports that content owners want more from you than they get from your competitors and your competitors can always reduce their fees to match anything you can do.


Maybe its not a great time to be a phone company after all.


disclaimer:  Its (almost) always a great time for Harvard to be Harvard but the above muse is my own.