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[December 5, 2003]

Is The Sky Falling For The Bells? Nah, It's Just �Dirty Math"

BY BRUCE KUSHNICK


The Bells have continually complained -- "Woe is us. We're losing phone lines and we are losing business, right and left, and we need to get rid of any regulations that allow competition." It's another smoke and mirrors campaign by the Bells. It's all about "Dirty Math," the ability to play with numbers by leaving out significant other facts.

Our last report refuted the Bells claims that the number of lines are dropping at the rate the Bells are telling the world. (It features Bell data, including overseas losses and executive compensation, through second quarter, 2002:
http://www.newnetworks.com/profitreport2002.htm.)

Next month, New Networks and Teletruth will be releasing a report on the 20th anniversary of the Bells' stats -- lines, employees, revenues, (lack of) broadband deployment, etc. We�ve been actively tracking this stuff since 92.

Let me give you the crux of the issues as we see it.

OVERALL MARKET
a) Yeah, the number of copper wiring lines into customers' homes and offices has been dropping. One of the largest drops is from people dropping second lines. This is being caused by what we now believe was hyper-growth during the Internet boom because when you track the census data from 1995-2002, the number of lines increaseS way more than the population and then starts to decline in 2001. I'll be supplying this in data form for our upcoming report.

An example: BellSouth, 1998. "The increase was primarily attributable to continued economic growth in BellSouth Telecommunications' nine-state service region. Growth in additional residential lines ordered by existing customers accounted for approximately 30.8 percent of the overall increase in total access lines since December 31, 1996."

What utility and monopoly has growth of 31 percent in three years without major increases in the overall population and households? In short, there is simply a "rebalancing" of customer demand going on.

a1) This rebalancing is also reflecting the overall economic downturn which everyone went through. The losses of the CLECs and Internet businesses and other companies who have either gone bankrupt or cut back, not to mention every other business that was a supplier in this food-chain, also had an impact as they cut back on the lines they ordered or used.

a2) It is ironic that the hyper-growth was created, NOT by the Bells who just sat there and took orders, but by the small independent ISPs -- the Innovation Engine, who brought America to the Internet. Ironically, the Bells have done everything in their power to put them out of business. We've argued that had the Bells a) actually fulfilled the promised fiber-optic deployments; b) used the ISPs as another sales channel; and c) the FCC and states got off their butts and enforced the laws on the books, a large part of the telecom crash could have been avoided. (We've written separately about this.)

DIRTY MATH ACCOUNTING
b)Voice Line Equivalents, the data that redefines the various products the Bells sell as voice circuits and which Verizon uses when it tells investors how well they are doing, have continually increased over the last four years. (Voice Line Equivalents were not published in the 1990s in the annual reports.)

Here's Bell South's last three years. Oops.. a 32 percent increase in lines!
 

BellSouth�s Voice Line Equivalents, 2000-2003

 

2000

4thq2001

4thq2002

3rdq2003

increase.

BellSouth

53,800

65,879

70,029

70,955

32%


c) Next, some of the Bells are NOT counting the addition of DSL and other various circuits as a second line when it is line-shared -- so all of the DSL is simply not being added into the equation. Also, this is a reason people drop second lines -- who needs a second line when one will do? But it is a second circuit of service.

d) Some of the Bells, Verizon, for example, DO NOT COUNT COMPETITIVE RESOLD OR UNE-P LINES as part of their number of lines... Oops. So, when the company loses a line, no, it's really reselling the line and simply doesn't account for it in the number of lines.

e) We don't argue that some excess growth is being taken up from the cable modem side. But remember, DSL is an additional service that the Bells are making more revenue from, it is not part of "local service."

f) The wireless impact? Well, in a survey by PEW, only four percent left their current land line for a total wireless experience and based on our informal focus groups in the last two weeks, the "college student factor," where everyone leaving college gets rid of their land line, is so far fantasy. One factor:  Many college students live at home or with roommates and those households aren't really changing too fast. People don't like not being able to get a signal in their bedrooms and feel wire lines are more stable.

Of the people interviewed, (Bay Ridge Brooklyn, Hollywood Video store, clip board in hand) about half in college or recently out, NO ONE had simply gotten rid of the wireline service.

And guess what -- because of the mergers, Verizon and SBC have become numbers one and two in wireless, and no one has counted those lines as additional businesses to these companies, even when they are from the same customer who buys local phone service from them.

g) NO one is counting the increase in long-distance as "another line." Though in common thought this isn't being done, when you realize that the Bells have gamed the system to enter LD prematurely, what you find is that the Bells now have 30 percent of the LD mostly residential marketplace -- meaning over the same household wire -- and while there's some local competition, only 10+ percent are using competitive lines, and that includes both business and residential. If residential is one-third of that --- Who got the deal?

h) Selling off lines: Verizon annual report 2002, "The special and non-recurring items include operating results through the sale date of 1.27 million non-strategic access lines sold in 2002, 1.6 million non-strategic access lines sold during 2000."

Oops. Verizon cut 2.9 million lines... could that be one of the reasons the number of lines is going down?

Part 2

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