Imagine you wake up after a storm and there's no dial tone from Verizon (News - Alert). Maybe you live by the seashore in a town called Mantoloking in New Jersey or on Fire Island in New York. Or maybe you can't get online with DSL and you live in the middle of New York City, in the borough of Manhattan.

As most know, a storm named Sandy wreaked havoc on the East Coast back in October 2012. It is disheartening that as of May 2013, there are still customers who have not regained to service even in the middle of New York City, some six months later.

Moreover, in some places like the barrier beach towns on New York’s Fire Island, they have been told that they will never get their service repaired. Instead, Verizon would like to offer customers a product called Voice-Link, which is a cell phone service in a box that Verizon is now selling in place of fixing the copper wires.It has caused a bit of an uproar in New York, as state law requires that the company maintain and offer service to all customers in their franchise territory. The reality is that you can't simply substitute one service with a service using another technology. Or, at least not yet.

Telecom Deregulation is gaining traction in the states

However, this has become an issue not just in New York, and it is going to get really ugly nationwide really quickly. The reason is that AT&T (News - Alert) and Verizon have been going around the country with a group called "ALEC," the American Legislative Exchange Council. They have collaborated with ALEC-friendly state politicians to create “model” legislation to remove all regulations and obligations on telephone companies’ businesses including no longer having to fix or even offer phone service.

In fact, this model legislation is now at the FCC (News - Alert). AT&T has filed a petition to close down the public switched telephone network (PSTN) networks. The claim is that the PSTN has outlived its usefulness now that people are moving to Internet-enabled services, particularly voice over IP (VoIP). Conveniently, based on historical precedent, VoIP services are considered information rather than common carriage services and hence are not regulated.  And here is an FYI. The FCC has agreed to start “trials” to allow the phone companies to “transition,” their networks of IP technology, i.e., close  their legacy voice networks which still mainly use the existing copper outside plant infrastructure.  Ironically, AT&T didn't highlight for the FCC that fact that many of the connections on their U-Verse broadband offer use copper to deliver the service to customers’ over the last mile, employing new technologies that extend the life of installed copper by increasing the amount of traffic it can carry in order to be competitive with other broadband technology that services homes. What is most troubling is that the push in the states to get the carriers out from under regulation and remove all of their common carriage obligations including repairing the installed plant or being a carrier of last resort are catching on.  

According to a new National Regulatory Research Institute (NRRI) report, Telecommunications Deregulation—Updating the Scorecard 2013, published in May:

Twenty-five states had passed legislation eliminating or reducing state commission authority over telecommunications by the end of the 2012 legislative sessions. By the end of 2013, this number could increase significantly, given the legislation pending in states across the country. Legislation reducing regulatory oversight (or clarifying the deregulation initiatives passed earlier) was proposed in 20 states during the 2013 legislative session… Should the majority of the legislation pending in the 2013 sessions be enacted, nearly 70 percent of the states will have significantly reduced or eliminated commission jurisdiction over retail telecommunications services.

And it doesn’t stop there. According to the NRRI report, the companies are no longer required to offer any service, commonly known as” carrier of last resort,” in 10 states.

Most importantly, by the end of 2012, legislation in ten states had withdrawn or limited the requirement that the incumbent carriers serve as carriers of last resort in their service territories. The legislation pending in 2013 continues the process of moving toward a deregulated, market-driven telecommunications ecosystem.

These bills are the strip-mining telecommunications regulation. They remove oversight by the public utility commissions for most services, remove “quality of service” obligations and the trend is to move even residential customers onto contracts so that the customers can’t take legal actions and must arbitrate when there are questions regarding terms and conditions.

No quid pro quo for the ending of the PSTN and its regulation

AT&T and Verizon have both announced that they are abandoning the copper wires and have stopped doing upgrades.

Verizon offers FiOS (News - Alert), a fiber optic service to the home, and it has completed deployment in about 50 percent of states, although it is hard to determine the accuracy of that number. The New York City Public Advocate’s Office recently claimed that Verizon had finished only 50 percent of its upgrade of New York City to FiOS even as the cable franchise under which FiOS falls requires 100 percent  of the city be broadband by July 2014. AT&T first announced it had no plans to upgrade most parts of the 22 states where it provides service to U-Verse.  However, to get the FCC's favorable acceptance of the petition, AT&T has announced it would upgrade (still using the copper) its franchise areas so that 75 percent of customers in those areas would have access to broadband services by the end of 2015. This all sound reasonable, except for the fact that AT&T has rarely if ever fulfilled the promises it has made regarding bringing broadband to all of its customers in a timely fashion, and this promise is likely to be more a political ploy than a true commitment to reach the stated goals since the commitments are voluntary.

Wireless substitutes?

While there are those who talk about the “wireless-only” markets, these plans call for shutting down the wires – including DSL. What this means is that devices like ATM machines which use copper lines or alarm circuits would be impacted. Verizon’s Voice-Link cannot accommodate these applications.

The wireless substitution question extends way past issues regarding phone service. In many places in the US, there will be no cable competition. Telecom operators in many high-cost areas or areas where they do not believe they can operate profitability for whatever reason may not build out a competing broadband network. This means not putting in fiber or even providing services based on copper life extension technology such as VDSL2 vectoring. And, for services like broadband video, 4G LTE (News - Alert) is not going to be an alternative, especially as mobile operators move away from unlimited data plans.

We already paid for broadband

The real scandal in all of this is that throughout America starting in the 1990’s, customers paid billions per state to have their old copper wiring upgraded to a fiber optic service. New Networks Institute estimates that the companies already collected $360 billion and counting for what can only be called “phantom networks.”

In fact, it should be noted that in May 2012, the New Jersey State Board of Public Utilities (BPU) issued a “show cause” order to Verizon to explain why two small towns didn’t have quality phone service, much less broadband. This turned up the heat on telecom service in New Jersey. Verizon had committed to have 100 percent of the state completed with a service capable of 45 mbps in both directions by 2010. It failed to deliver, but collected an estimated $15 billion to do the upgrades of the utility plant.

Heading in the wrong direction

The trend lines of the future are driving us towards being a third-rate broadband nation, with little real competition for services. But moreover, it is also creating new massive “digital dead zones” where the companies simply decide they just don’t want to bother offering basic services to whole sections of their own territories.

What’s the likelihood of a hurricane in Florida where phone service disruptions can be widespread? Stay tuned, AT&T has gotten rid of “carrier of last resort” obligations in that state.