Blog Post

The Real Reason Verizon Is Backing Away From Landlines

ivan_seidenberg_fVerizon (s vz) CEO Ivan Seidenberg yesterday said the giant carrier is giving up on the landline and will be reorganized to reflect those changes. He cited the inevitable decline in landline subscriptions and said that video is the core product in this new era of telecommunications (notice he didn’t say data, because that would relegate his infrastructure to being a bunch of dumb pipes). What he didn’t say was that as the landline business dies, it’s expensive to maintain, nor did he say that the 17.2 million remaining copper-based phone line subscribers might find themselves in trouble.

As I said in an earlier post, as the number of landline subscribers decreases, the carriers’ cost to service those aging copper lines is increasing. Based on data from FCC reports, AT&T (s T), Verizon and Qwest (s Q) spent $52 on maintenance per access line in 2007, and $43 per access line in 2003. Given that dynamic, and the fact that the wireless business is on a tear, Seidenberg obviously felt safe distancing Verizon from copper voice. In its most recent quarter, Verizon earned operating margins of 4.8 percent on its wireline business (which includes FiOS and landlines), and 28.8 percent on its wireless business. Revenue was split with $11.48 billion coming from its landline businesses and $15.4 billion from wireless.

But while investors may cheer this news, the folks who depend on landlines — the poor, security conscious, or those who simply believe that the call quality is better on copper lines — will suffer. A few months ago I mocked an AT&T advertisement targeted at just those people, but many commenters defended their landlines. Heck, I even have one.

So what happens to those people — those 17.2 million subscribers — now that Verizon will focus on wireless and video delivered via FiOS? It is continuing to dump its rural copper networks by selling them to smaller carriers. When it comes to copper Internet access lines, Verizon is accused of halting investments in DSL in areas where it has FiOS.  Should copper landline subscribers expect the same sort of treatment, since Verizon is giving up on the biz? On that same note, Verizon still has 6 million DSL subscribers, about 20 percent of which aren’t on the schedule to get FiOS service. What does Seidenberg’s announcement means for them?

Seidenberg is not the first to conclude that landlines are no longer the key business for a carrier. Back in April, AT&T’s CEO, Randall Stephenson said that the landline business was dying and the big money was in wireless. He also talked up how his company was changing to reflect the current realities.

18 Responses to “The Real Reason Verizon Is Backing Away From Landlines”

  1. This sounds like when they made people using antennas get the digital converter box to keep getting their stations. Well 95% of those who did get the box do not get the stations. Now they are forced to switch over to cable or do without. Wonder if that is how it will be for landline customers. Will they be dropped if they don’t switch to FiOS?

  2. I just hope the telecoms don’t abandon the copper lines too soon (the same fate as the railroads) only to discover later that they were actually more practical than they seemed, i.e. once wireless growth (and revenue) has topped out. Of course in true fashion they’ll have the consumer and the government absorb the cost of decomissioning and then pay to revive them.

  3. Little history may be useful here. Prior to AT&T (American Bell ?) there were many, many telephone companies with their own “connection technologies.” A smart Theodore Vail told US govt that AB will provide a “Universal Service/Access” across the nation in return for a guaranteed Rate of Return. That became the Mantra and a giant was borne which had guaranteed rate of return!

    True to the promise a true Universal Service was given whether in a far away boonies in Montana or to thriving business in Manhattan. AT&T became very much “military” like organization with huge sets of “Business Service Practice (BSP)” books which was precursor of Japanese standardization and it worked like a charm. As a result, America’s phone system became a class by itself and gave huge boost to the business and residences alike. And AT&T became a stock of orphans and women – largest number of outstanding shares in the world eagerly waiting for great dividend payouts!

    Another society benefit was that all the Bell Labs research was open – be it Unix or Transistor and lot of huge advances in basic sciences (Big Bang Theory) and many Noble Prizes came out of that.

    Now the rub – there was huge cost of the embedded copper and switching systems. Charlie Brown got “hood winked” in going into computer business – which was IBM’s core competency. To do that he gave up local phone companies – likes of Illinois Bell etc. He did feel that a business mistake was made by giving up the “terminal in the bedroom” – Local loop, Rest is history, the demise of AT&T as it was known – lesson – don’t go into a business which is not your core competency. As a side note, IBM tried to get in voice and data networking by buying Rolm and SBS and failed and pulled the plug much faster than AT&T and did not give up anything unlike AT&T giving up Bells and not getting rid of NCR (Olivettie) venture fast enough. Another thing happened that the telcos became independent of Westen Electric Manufacturing and Bell Labs driven systems and hence Lucent was bound to suffer even when it was being borne and Lucent made other mistakes of rushing into give “money” to new telcos to deploy DSLAMs!

    Now telco’s were stuck with embedded cost and more restrictive ROR. Then comes the Telecom act setting up digital access to new telco’s – likes of Covad and Rhythm etc. Rules required Telcos to allow these new telcos to share the Central Office space for their DSLAM to use the local loop. Lucent (and others) rushed to “sell” DSLAMS to these new telcos (basically sold when companies had no “credit”). Local telcos balked and dragged their feet to give the Central Office space for 6-8-10 months forcing the new telcos to go bankrupt (nothing to sell w/o DSLAMs) and with that up went Lucent and other vendors who had “sold” so much equipment to these new telco with no hope to get the money.
    (Different kind of Tech Bubble!)

    Digital revolution did not come to USA because of the huge embedded cost of copper (which allowed original Universal Service to be offered!). That is why cellular took off in developing countries (India has more cell phones than the entire population of USA) because this new “disruptive technology” completely avoided the huge cost of copper and time involved to lay new copper (even though the manual labor was “cheap”). Today India has 30 million land lines (which took more than 80 years to reach) and 330 millions cell phones (in last 15 years)!

    So telcos gave universal service for guaranteed ROR and could not jump to the new technologies fast.
    They did lay fibers but mostly between COs and not in local loop. When Cable came and got another local loop to get the terminal in the bedroom – it was the demise of landlines.

    FiOS is not utility because it does not provide Universal Service promise and does not get guaranteed ROR! Telcos were run by the same smart people who Theodore Vail trained and when they parted
    ways they came back and gobbled up old AT&T!

    And now new set of old style Mom & Pop Telcos (which still exist – in 1979 there were 700 of them just in Illinois!) will be borne by Verizon shedding the copper business – long live the copper and sig…h forget Universal Service!

    Telcos will fight to keep the hold on the last mile – the terminal in the bedroom except it is now a new terminal and new “copper.”

    Jay Shah

  4. ( I posted this at the Times site… thought it should be considered by gigacom readers as well.)

    Actually, what’s going on is alot more sinister — The Utility is being strip-mined by Verizon’s FIOS, a direct competitor to the utility —

    Let me explain. For 100 years, phone service is a utility — it goes to everyone’s home, it is ubiquitous, it was also supposed to be upgraded as each state changed state laws to upgrade the PSTN — that’s the public switched telephone network — the utility — to fiber optic services.

    By 2009, 113 million homes should have had 45mbps services in both directions as the state gave the phone companies billions per state — that means higher profits and higher prices, to fund these build outs.

    Here’s New Jersey law —
    “D. NJ BELL’S PLAN FOR AN ALTERNATIVE FORM OF REGULATION MAY 21, 1992 — NJ Bell’s plan declares that its approval by the Board would provide the foundation for NJ Bell’s acceleration of an information age network in Now Jersey and referred to by NJ Bell as ‘Opportunity New Jersey’ (See the Deloitte Report). Opportunity New Jersey would accelerate the deployment of key network technologies to make available advanced intelligent network, narrowband digital, wideband digital, and broadband digital service capabilities in the public switched network, and thereby accelerate the transformation of NJ Bell’s public switched network, which today transports voiceband services (voice, facsimile and low speed data), to a public switched network, which transports video and high speed data services in addition to voiceband services.”

    and here’s a link to the page — showing that customers should be getting 45mbps in both directions and 100% should be completed by 2010 — didn’t happen.

    It is the reason America is 15th in broadband — because the companies never properly upgraded the utility, even though we all paid for it, state by state.

    It’s still in many state laws to upgrade the Utility.— which was never done.

    The telecom act of 1996 also opened up these utilities — the last mile, to have competition for internet, broadband, phone — but, the FCC in 2004-2005 got rid of all of the competition by a series of misguided decisions — thus creating a duopoly, wiping out thousands of competitors nationwide and causing net neutrality issues — if there’s competition, you can just leave.

    And Now? Well, Verizon and AT&T claim that FIOS is NOT the utility but a separate “interstate information service” without the obligations of being ubiquitous or open to competition — The have stolen the PSTN, but yet get the local phone service customers to pay for these networks –

    For example, Verizon, New York had 90% increases to local service. and the commission, blindly gave the companies more money.

    New York State Department of Public Service, June 2009

    “We are always concerned about the impacts on ratepayers of any rate increase, especially in times of economic stress,” said Commission Chairman Garry Brown. “Nevertheless, there are certain increases in Verizon’s costs that have to be recognized. This is especially important given the magnitude of the company’s capital investment program, including its massive deployment of fiber optics in New York. We encourage Verizon to make appropriate investments in New York, and these minor rate increases will allow those investments to continue.”

    Do we really want this scam to continue — to have companies without the original obligations to simply take over the critical infrastructure — Remember, business and residential customers rely on these networks — and some classes of customers, such as Seniors, are really harmed as they are low volume users –25% use over the air TV, and probably don’t have or want broadband. — but they are now funding FIOS

    We asked the FCC to create a new workshop to investigate-don’t hold your breath– and a free ebook on the topic.

    — Bruce Kushnick

  5. Don Peterson

    The consumer needs and desires has become a thing of the past. Speed and greed are the rule. KEEP THE INVESTOR HAPPY is the new rule. What ever Wall Street wants. What will become of the dedicated men and women that maintain these copper lines – most of them may I add are either members of CWA or IBEW. Get rid of the copper + Get rid of the unions = PROFITS THAT INCREASE and happy investors. The consumers loose – That is unless we get the politicians off their best intentions and working for th workers that pay their salary ! AMERICA WORKS BEST WHEN WE SAY UNION YES !!!!!

    • Giuseppe Falconio

      I am 100% with you. In these times that is the only way that makes me feel freer. Otherwise I have the sensation I am a slave of big companies, just a leave shaken by the wind of their balance sheets.

    • get a clue guys!!! based on what you said, Apple and Google should hire union workers who need mandatory smoke breaks and leave at 4:59pm. we import the real talent that drives whatever is left of our economy not destroyed by stupid, greedy govt and lazy union labor.

      • Giuseppe Falconio

        You miss the whip and the brown shirt. Please get those and comeback to the forum.

        Google and Apple deal with a different work environment thnt cooper landlines. And by the way, union are an expression of freedom, which, apparently, is absent in your world. Why don’t you join us?

        In an economy where huge interests run the world, who needs a clue is you if you are naively thinking that you are still free.

  6. Giuseppe Falconio

    I did wonder too, until I realize that time is a factor of profit. That means they will drop the copper network when it will become red in their books.
    Based on this satement, will it be possible that some DSL subscribers will not even get FIOS ?

    The consumer has become the subject of corporate earnings; in a distant era was the object of their services.

  7. Andrew Leyden

    I think the regulations that allow you to get other DSL providers even if you have Verizon copper will fall apart once Verizon provides FIOS or Fiber only to the house. They won’t have the legal requirement to allow other providers on their lines if I remember the wording of the regulation correctly.

  8. I am no fan of the landline.

    However, the fact that unless I am within a specific 20 square feet of my 1500 square foot home, every call at home on the wonderful AT&T mobile network drops at some point, makes me hold on to the landline as a back-up. Oh, and there is no FiOS in my neighborhood yet.