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CHAPTER VII - The Transformation of the Public Switch Telephone Network

The advancement in mobile technology has led to many consumers “cutting the cord” on their fixed landline telephone services and relying solely on their mobile telephone (or other IP-based technologies) for voice services. As noted above, there is general agreement that this IP Transition is inevitable. Where the debate has turned instead is to the consideration of which public policy principles from the PSTN should also apply to wireless and IP-based voice services.

Social Contract

Public Knowledge has proposed the idea that, throughout the last one hundred years or so, a sort of “social contract” has developed between phone networks and consumers. This contract embodies five fundamental public policies that define society’s fundamental expectations regarding voice communication service. The question is how and whether to carry these principles over to an IP-based system. The five principles are:

  • Service for All Americans. This principle contemplates ubiquitous and affordable service for all consumers who wish to purchase it.
  • Interconnection Competition. This principle embodies competition between wired carriers, which has evolved to competition between wired and wireless carriers.
  • Consumer Protection. Wireless was deregulated early in its inception to encourage investment and innovation. Thus, there are areas that are unregulated in wireless networks that are nevertheless regulated in wired networks.
  • Reliability. This principle refers to call quality and call completion. These are rarely issues in wired networks, but wireless call quality may be less consistent.
  • Public Safety. Wired telecommunication networks have been a staple in the public safety infrastructure. If a complete shift to wireless were to occur there are significant challenges to overcome in terms of reliability and the ability to trace emergency service calls to a precise address.

Service for All Americans

Basic voice service for all Americans has been a defining public interest characteristic of the PSTN. The ubiquity and affordability of the wired network is unmatched for any other service in the United States. This ubiquity has not come without a cost, however, as it has required extensive government intervention to achieve. There are numerous subsidies that make the service affordable and to encourage network deployment in areas where it would otherwise not be economically feasible to do so.

Some consumers are unwilling, or unable, to pay for both wired and wireless voice services. Low-income households that can’t afford two separate subscriptions are choosing wireless primarily because of its mobility capabilities. Another reason may be because the proliferation of Wi-Fi is making wireless much closer to ubiquitous and much more affordable. While there are reasons why wireless and wired are not perfect substitutes, it is clear that, for many consumers, the two networks are reasonable substitutes.

Even if wireless telephone networks were to become a near-complete substitute for wired telephone networks, divergences may persist (without a considerable shift in the underlying regulatory framework). Importantly, there is no carrier of last resort obligation for wireless—meaning a wireless carrier cannot be forced to connect a particular user to the network.

There has been an emphasis on servicing and distributing wireless to rural carriers, and ubiquity has successfully increased in part by making Universal Service Funds (USF) and programs like LifeLine available. And technological solutions like Wi-Fi and self-provisioning have helped. But, for the reasons discussed above, there are still substantial infrastructure challenges facing wireless in rural areas.

But there is disagreement about how ubiquity and affordability should be achieved if there were a complete shift from wired to wireless. Given that 96 percent of Americans use a phone number for basic phone service—whether it is wired or wireless—some at the conference believed that wireless coverage—service offered to all households—should be mandated. There was concern with some of the competition-based tests that indicate that an area, which wireless carriers claim is covered by wireless, is not actually covered. The coverage complications increase where a given area theoretically has service, but where, by virtue of geography, some consumers simply do not have usable access. Further, more coverage complications arise as new areas are developed where there was not previously coverage. For Harold Feld, guaranteed service is the highest priority, and ubiquity, he asserted, “is not achieved by any other thing that we have not mandated that ubiquity for.”

In addition to mandating service, there was also discussion about mandating technology upgrades. Mandating technology upgrades may be necessary to achieve ubiquity and affordability if a complete substitution of wired by wireless were to occur. Those advocating a mandated solution argued that when the phone network is updated, the costs should not be born completely by consumers. If there is a mandated shift for public policy reasons, there needs to be some recognition that the status quois changing and consumers should not have to bear the entire cost of that change. For example, if a consumer were to switch to digital voice, the consumer would lose use of their fax machine, but that would be the consumer’s choice. If, however, there were a mandated change to digital voice, then the public would be taking away a product with which some consumers are satisfied and that some consumers rely upon. These consumers should not have to bear the cost of the transition.

Several roundtable participants pushed back on the idea that service and technology upgrades should be a mandated obligation for carriers to bear. As Austin Schlick, Director of Communications Law at Google said, “I'm not familiar with the concept that disruptive technologies shouldn't have any negative effects.” There was concern that trying to minimize the impact of the transition on ubiquity and affordability could prevent a maximization of the positive effects of the transition.

But rather than allow these concerns to thwart the transition entirely, Geoffrey Manne argued that any disruptions should be dealt with ex post:

If moving from 97 percent penetration to 94 percent means we should stop this before it happens because we need to resolve that problem first, you may be imposing much greater cost on the 94 percent for a small benefit to the 3 percent. It would be better to undertake the clearly value-increasing transition and deal with the marginal problem subsequently, even to the point of determining who pays only subsequently.

Concurring with this point, Harold Feld remarked that, “for a lot of these issues, to the extent that we have these issues, we need to be solving them concurrently. And we will certainly discover new issues as we start to transition.”

Manne continued, noting that:

Part of the problem is that you have to ask permission first, and that strikes me as creating a huge problem. How can we, or should we, think about getting ourselves to a system where you don't have to ask permission, say, on Fire Island to switch the network? Don’t we want a regulatory system that says, “if they do switch the network, there may be regulatory requirements subsequently that they'll have to meet, and if they can't meet them there will be consequences. But subject to that limitation, providers are free to manage their networks as they see fit?”

Likewise, David Don, Senior Director for Spectrum Policy at Comcast, suggested the need of performing cost-benefit analysis and ensuring that at some point “the holdout, especially the irrational holdout, cannot stop progress.”

At the same time, there was also concern that market forces that might otherwise deal with ubiquity and affordability concerns would be thwarted by mandated service. If wired carriers that do not compete in the wireless space see that incumbent wireless carriers are mandated to provide services to everyone, they may be less inclined to enter the wireless market and compete. Additionally, mandated service eliminates an element of competition. If carriers are obligated to provide ubiquitous service, no carrier can differentiate itself by offering ubiquitous service. Discounting competitive and market forces by mandating ubiquity could therefore negatively affect the transition to wireless, innovation and pricing.

Reliability

Reliability can be measured in terms of call quality and call completion rates. These two aspects of quality are crucial to public goods like emergency services. Reliability in wireless can fluctuate based on call volume, which can be a function of population density and other exogenous variables that cause congestion. Additionally, wireless phones can be inadequate in long-term power outages whereas PSTN wires are separate from the electric power grid.

While a shift from wired to wireless does pose some reliability issues, it also provides an opportunity to rethink reliability. For example, the reliability standard for wireless would be much higher in terms of rapid deployment and repairing damaged networks. Two wireless networks can enter into temporary roaming agreements, which would enable them to share damaged networks making both networks stronger. Additionally, wireless networks can contract with ISPs to use Wi-Fi hotspots to facilitate offloading, temporarily easing strain on a damaged network.

But while the shift from wired to wireless creates the opportunity to rethink reliability, wireless networks still have some perceived reliability issues. This is likely one of the issues preventing a more-rapid, more-complete shift to wireless. Although there has been a substantial amount of cord-cutting by consumers, businesses (and especially small businesses) need particular levels of quality and reliability; many are unwilling to make the tradeoff to wireless.

One possible solution would be to create a reliability threshold for wireless. By creating this standard, it would force carriers to solve the problems associated with isolated consumers and spur broader roaming agreements. This would be particularly important for public health and safety services and could lead to emergency roaming agreements that would be triggered by certain events. Before wireless can be a true substitute for wired, however, the reliability of wireless needs to be addressed.

At the same time, wireless has advantages over wired. As noted above, wireless networks may be more flexible when damaged. They permit mobility, digital device connectivity, VoIP services and more. While the transition may permit a rethinking of reliability, it should not be presumed that wireless networks would fare worse under a more appropriate standard.

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