Thursday, October 19, 2006

Small Changes That Make a Difference

DSL Prime: AT&T/BellSouth: Small Changes That Make a Difference. Low cost to at&t, real public benefit.
"As I go to press, no news on the at&t/BellSouth merger. Ed Whitacre would have made concessions worth billions to get the deal approved, but today’s FCC is reluctant to negotiate that hard. So I’ve focused on items that cost AT&T little or nothing, as evidenced by other carriers implementing them voluntarily. This report is too late to influence the deal, but perhaps these ideas will be useful other times and other places."
  1. “Affordable Broadband for All,” as Whitacre promised in 1999 and confirmed in 2005. With carriers from Vermont to the U.K. providing 98%+ coverage, it’s clearly practical. 90-95% coverage is clearly profitable at AT&T and nearly any other territory. (I’m defining “profitable” as marginal contribution at least 2-4x the cost of capital.) The largest single group of unserved are the millions of homes AT&T has marked to dump and stopped investing in. No regulator should accept poor service to a group like that. Ed Whitacre is one of my authorities that the second largest group, homes with 15,000 to 28,000 foot loops, could be easily served with repeaters. In bulk, repeaters cost well under $150. The more expensive installation is less than a quarter of the three year average revenue of over $1000 per home and $700 operating income typical for AT&T DSL. With 100% coverage, Ed Whitacre could then claim to be a champion of Bush’s ‘Affordable broadband for all Americans in 2007,” making the President’s promise true for half the U.S. Let their engineers make the efficient decision between DSL extenders, Wimax, or other technologies. AT&T can ensure “affordable broadband” for the small group (1-5%) best served by satellite by buying in bulk and or even sharing the costs of a satellite. Let them use their purchasing volume to reduce the cost and pass it on to consumers. The goodwill from policymakers should more than repay the effort.
  2. AT&T should provide a detailed map of any territories they won’t serve within a 6-14 months. Then the FCC can find an alternate method to meet the government goal. This should be a worldwide requirement of any carrier with unserved areas.
  3. Any place AT&T (or other incumbents) doesn’t serve should have a special requirement: essential facilities should be provided at cost plus a small profit. Dark fiber and cageless collocation are the most important. I’m not suggesting reopening the endless UNE debates, just carving out a special procedure in the (very few) places the telco doesn’t serve. The telco has already decided these territories aren’t profitable, so giving up the lines will cost little.
  4. AT&T should eliminate their high transit charges for the poorest of nations. The total revenue involved probably is less than they spend on Ed Whitacre’s plane, but Internet peering issues continually create a diplomatic problem. Most of the world believes the U.S. domination of the net allows U.S. backbone carriers to charge unfairly. Whether that’s true or not, this concession for the poorest nations costs so little it’s the right move to make. Lowering transit costs at international peering points is only part of the answer, but the larger part of the problem is not caused by AT&T. Across Africa, for example, fiber to the Internet backbone is ridiculously overpriced by national monopolies. The East African fiber and similar efforts deserve strong government support.
  5. AT&T should offer a ten cent a minute long distance plan with no fixed charge and no minimum if you use their local service. Verizon voluntarily offered exactly that before old AT&T Long Lines and MCI disappeared. Kevin Martin needs to do something about the continuing increase in long distance prices for many Americans since the mergers. These fees on people who rarely call long distance are a tax on the poor. LD in the U.S. costs a penny or two wholesale, so ten cents when you already are billing the customer for local service. (A separate story in the works is that wholesale LD prices in the U.S. have doubled recently at one major carrier. The historically unprecedented doubling of prices is because of quiet technical changes the FCC is considering making in ICC.)
  6. Bill and keep is overdue as a complete replacement for intercarrier compensation at the larger carriers. AT&T has long supported this, but is angling for even better terms in the Missoula petition. (Missoula moves about a $B a year to AT&T in the most likely scenario.) Details of ICC belong in a separate discussion, but it is essentially an incumbent subsidy. It therefore is a major drag on innovation including VOIP and independent broadband networks. Because of AT&T’s large LD business, they pay so much in ICC that this will cost them little. There is no reason, incidentally, to cover this with an increase in now obsolete SLC charges. California, Texas, New York, Illinois and most other states have virtually eliminated price regulation, so the Bell can raise rates directly if that’s appropriate.
  7. AT&T would happily agree to offer per channel video pricing, a major goal for Martin. Bundling channels that have “indecent” programming forces consumers to pay for something they may not want and offends Martin’s conservative supporters. AT&T’s original plans included a al carte as a differentiator against cable, but the networks would not go along. If the government required it, however …
  8. A price cap for lifeline rates, which would keep down USF costs.
  9. Besides honoring the spirit of free access to content, Whitacre could agree to follow another of the “four freedoms” - consumers should be permitted to attach any devices they choose to the connection in their homes. I spoke today with a set top box maker who wants to bring his product to retail sales in the U.S. with features AT&T’s set tops don’t offer. The FCC requires cable companies to offer a “cable card” or a downloadable alternative, and that provision makes sense here as well. Consumers buying their own set top/PVR save AT&T $200 in capex, so it’s an easy concession for Whitacre to make.
  10. Selling off the Wimax spectrum, enough for a redundant network in many territories. It’s not bringing in any revenue today.

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