As 2004 comes to a close, it’s time for some obligatory reflection on the past 12 months. No doubt it’s been a rough one for the competitive telecom industry. This month, it awaits final rules from the FCC on how to conduct itself.
Meanwhile, a gulf remains between incumbents and competitors, which rivals the gap between liberals and conservatives in the American political realm - ne’er the twain shall meet. One incumbent spokesperson admonished me for stating plainly in November’s editor’s letter that local telephone markets are not competitive.
What was I thinking?
Let’s see … ILECs remain the sole source of switched and dedicated access for 98 percent of businesses, according to a report by Economics & Technology Inc. Moreover, in its Triennial Review Order, the FCC itself reported that only 3 percent to 5 percent of buildings were served by CAPs. CLECs recorded 35.8 million access lines in 2003, according to New Paradigm Research Group. ILECs still have the majority.
To be fair, ILECs point to competition from substitute (intermodal) providers. So, let’s look at those.
Utilities remain largely in trials with their powerline communications services, which does not yet qualify as its own category in FCC data on broadband access methods.
Wireless displacement also falls short. In justifying its merger with AT&T Wireless, Cingular - a BellSouth/SBC company – said wireless is not a substitute for wireline.
Users continue to have both. Businesses are not trading in wireline services for wireless ones, and just more than 14 percent of residential users are, according to an Instat/MDR study issued earlier this year.
That’s nothing to wink at, but by the way, incumbent wireline telcos dominate this market, too, diluting whatever competitive market power wireless might represent.
That leaves cablecos. Certainly, they have a lead – the number of subscriptions for cable modem service was 1.5 times that for DSL service at the end of 2003, according to IDC - over telcos in the residential broadband access space, but their voice penetration is paltry.
In the small business and enterprise market, cablecos barely register. One estimate put them at just more than $300 million from small business voice services this year. The potential certainly exists, but ubiquitous networks and the back-office systems to deliver detailed commercial billing and customer services do not.
VoIP providers frequently are cited as a credible threat to ILEC dominance. VoIP telephone services will grow to around 400,000 U.S. households this year, and to 12.1 million by 2009, according to new research from JupiterResearch. The oft-omitted point is that voice is not a technology or network, but an application like data or video that traverses an underlying network that, again, belongs to an incumbent broadband service provider - either the ILEC or cableco. Price compression in the residential space means this largely becomes the domain of those underlying providers that can bundle access and other services like video for a packaged price.
In the enterprise, VoIP services more often than not ride the ILEC access facilities to connect to the VoIP provider’s platform because there are so few competitive access providers as I mentioned as my first point, bringing the argument full circle.
I am not saying local competitors have not made strides. They have. However, their spotty presence or their sporadic substitution for incumbent network services does not qualify local markets as sufficiently competitive.