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Technology Futures Completes Report On Line Competition In The Local Exchange

[December 16, 2003]

Technology Futures Completes Report On Line Competition In The Local Exchange

Competition is having a major impact on incumbent local exchange carriers (ILECs). For example, after years of high growth, the number of ILEC retail narrowband switched access lines peaked at 181.3 million lines in 1999 and has continuously declined since then, falling to 162.7 million lines by December 2002. So what does this mean to the telephone industry?

Technology Futures, Inc., an internationally-recognized
leader in telecom forecasting, has just completed a new
report to address these impacts. "Forecasts of Access
Line Competition in the Local Exchange," authored by
Lawrence K. Vanston, Ph.D. (President, TFI), documents
TFI's latest forecasts of the future of competition in the
local exchange and its impact on the ILECs. Key findings
of the report are listed below.

The research was sponsored by the Telecommunications
Technology Forecasting Group (TTFG), a consortium of
telephone companies comprised of Bell Canada, BellSouth
Telecommunications, Qwest, SBC, Sprint, and Verizon.

According to Dr. Vanston, "Competition from wireless,
cable telephony, and broadband makes continued erosion
of ILEC voice access lines inevitable. If ILECs want to be
more than custodians for a dying network, they must seize
the initiative for the next generation of broadband and video services." He adds, "This will require massive, staged investment in network upgrades, as well as recovery of the investment in the existing network. The forecasts
are intended to assist with both missions."

Key Findings From This Latest TFI Report:

* Wireless, cable telephony, and broadband substitution
is forecast to cause total ILEC narrowband switched access
lines (including UNE and resale) to fall from 181 million at
year-end 2002 to 100 million by year-end 2008 and to 50
million by 2013.

* Broadband will make up for some, but not all, of this
shortfall. Assuming that ILECs retain reasonable broadband
market share, total ILEC lines (including broadband) are
forecast to fall from 189 million at year-end 2002 to 135
million by year-end 2008, stabilizing at about 100 million
by 2013.

* In the long run, maintaining a reasonable share of the
broadband market will require ILECs to offer very-high-
speed broadband services (nominally, 24 Mb/s and above)
in the 2006 timeframe.

* The transition to very-high-speed broadband will require
very significant investment in loop fiber, packet switches,
and advanced circuit equipment between now and 2015.

* The combined impact of technology substitution and
competition on the depreciation lives (and value) of
existing ILEC narrowband switching, copper cable, and
conventional circuit equipment assets will be substantial.

This report would be of interest to:

* Incumbent local exchange carriers
* Competitive LECs
* Interexchange carriers
* Internet service providers
* Telecom equipment manufacturers
* Regulatory personnel
* Depreciation professionals

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