DSL Prime: The Telcos' Latest Multibillion Dollar Subsidy

While the telcos complain to the government about losing money, they boast to Wall Street about how many layoffs and profits they can achieve. Now, a new telco subsidy will cost every phone subscriber in the U.S. at least $3.50 per month.

by Dave Burstein of DSL Prime and Future of TV [July 27, 2006]

Telcos' "Missoula Plan" disguises multibillion price increase
Will reporters find the facts in 193 dense pages?
A multibillion dollar per year D.C. story broke Tuesday to near total press silence. The most important detail: a $3.50 per month+ increase in nearly every phone bill in America. The "Missoula Plan" is backed by a long list of phone companies. It will be very hard to stop. It moves at least $4 billion from consumers to telcos. Add the $1.29 per line USF subscriber charge, and more people will cancel phone service.

When Al Gore proposed a billion a year for schools and libraries, Republicans called it "The Al Gore Tax." If Bush and his FCC demand several times more, with the money going to the telcos instead of a public purpose, I say call this "The George Bush Tax."

This will be another test of the backbone of the FCC. It's all being presented in the guise of "protecting rural America" when instead it actually raises basic phone rates in both rural and urban America. Steve Labaton, Arshad Muhammad, Amy Schatz: Please take the time to report this well. None of your papers had the story today, but D.C. insiders know this is the biggest money deal in U.S. telecom.

The supporting documents are extraordinarily clever, but follow the money flows. Consumers are being asked to pay 20 to 35 percent more for basic phone service, with most of the benefits going to LD carriers. The smaller telcos fought hard to keep their share, and eventually a deal was reached to pass the bill to consumers.

Four hours with the proposal gave me confidence to see the main money flow, but no depth. I'll have more as I fact check and get supporting data. But heck, I'm the DSL reporter. I'd much rather the big papers with more resources cover this so I can focus on chips instead of Washington follies. Just follow the money, and question the lobbyists closely.

Corrections

• AP, not DSLR, should have been credited with the first report on this side of the Atlantic about the EU challenge to municipal fiber. Peter Svensson corrects "That snippet on the Dutch town appears to be cut-and-pasted from our story, which ran the prior evening." A Google news search didn't show the AP story, but it was right there on Yahoo.
  
  
• More than a year ago, I opposed Mike Powell's effort to simply eliminate ICC and move to bill and keep. I thought the rurals needed more protection, because I firmly believe in universal service. Seeing the Missoula plan, which raises everyone's phone bill in the name of "affordable service for all" makes clear Powell was right. Other ways could be found to meet the legitimate needs.
  
  
• Another mistake I made was to say "numbers-based" universal service charging was likely not to work, because too many people would shift their calls to some service outside the payment system. Some voice calls will be encouraged to shift to new technologies because of the couple of bucks extra. But two years later, I just don't see enough people moving to international VoIP providers or making their calls home over their Sony Playstations and XBoxes. Kevin Martin is right, numbers will simplify collection. I still disagree with shifting costs to basic consumers, however; the poor should not pay more.

E-mail

• Frank Coluccio asked, "Would you kindly provide the source of, and some accounting background concerning, the following statement: '... with speeds now over 100 Mbps and equipment costs down to about $200, virtually every carrier believes in fiber.' What is being included here under the heading of "equipment"? Terminal Equipment, ONT, ONU? Fiber (all three feeder, distribution and drop cables)? Other installation materials during the buildout? Labor? Central office allocation of OLT? IMO, the dollar amount is very low if it includes all of the above, even when one removes the labor costs from the calculus?" Fair question. I was careless in just mentioning a $200 number. That's a confirmed large volume Asian quote for ONT + ONU, GEPON. Verizon is rumored to be paying about $89 more for GPON, and the more typical small orders may be much higher. The fiber itself is cheaper than the copper would be, and in new builds most of the other costs would be incurred whether copper or fiber is used.

Briefs

• Thanks to B., for getting me at least some answers on a tight deadline, and to C., who found a way to prevent my making an error by pointing me to a public document. Also to the literally dozen+ chip guys and financial analysts who helped me on the stories above.
  
  
• Australian ISP Internode is doing a trial of ADSL Annex M, with upstream speeds of 2.5 Mbps. Anyone else working with Annex M, please let me know.

Wall Street

• Zhone had a strong DSL quarter, shipping 400,000 ports. But a write-off on "legacy inventory" created a $13 million loss. Ed Gubbins in Telephony noted unhappy rumbles on the conference call.
  
  
• Jessica Reif Cohen at Merrill has never been one to hold back her opinions. She and Michael Kopelman wrote "it is time for Disney to pull the plug on Mobile ESPN." Media Week expects sales will only be 30,000 instead of a planned 240,000. Some MVNOs are thriving in Europe, where wireless prices are high and regulated compatibility creates a large market. They typically fail in the U.S. because of margin squeeze, preemptive carrier advertising and incompatibilities that limit the postpaid market. The "natural price" of a U.S. wireless phone plan would be $15 to $25 per month if competition were working and ICC and USF were reasonable. Instead, it runs $50 to $60. [Ed. note: see also Today's cell phone system argues for retaining network neutrality]

People

• x-ElectriPHY founder Jim Apfel landed at SwitchCore. Apfel believes he has "moved up the network food chain to 1G/10G speeds while keeping strong roots in access including VDSL/PON." SwitchCore is a Swedish-based, public Ethernet switch company with sales/mktg/support in San Jose, CA.
  
  
• Karl Bode, who's been doing extraordinarily clearheaded reporting at DSL Reports, lost his home and much else in the recent floods in upstate New York. Karl writes, "You probably saw a home from my neighborhood floating down the river a few weeks ago on CNN. Six feet of water in the house—lost largely everything I own, so I'm in the process of rebuilding." He adds, "While the media stopped covering the story once there were no longer sensational images of destruction, portions of NY and PA are still very much struggling with the aftermath."
  
  
• D.C. reporters are doing little better with the communications aftermath of Katrina. The official FCC report was very weak, refusing to make basic reliability engineering required or enforceable. It ignored key improvements—keeping prices down so poor people have phones, providing voice mail in emergency situations, or allowing customers to rapidly switch numbers to someone who will, doubling effective funding for public safety networks by sharing the spectrum with voice calling networks, or anything else the companies feared might hurt their business. No major D.C. reporter picked up the story. The best emergency services engineer in the country tells me (off the record, of course) that telco cutbacks have damaged his capability to respond.
  
  
• For job ads, visit the DSL Prime website.

Copyright 2006 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

"The power of the printing press belongs solely to those who own the presses"
—A.J. Leibling

The Internet is the cheapest printing press ever invented.