Hey Rural Telcos – It’s Time to Call it Quits on POTS

Like all sectors within the telecom industry, the rural telecom industry is in the midst of significant transition. Both the technology and the business models it enables are changing, and rapidly. Telecom carriers of all sizes are rethinking their business and trying to build a roadmap to a sustainable future, built on an IP infrastructure. Larger and newer communications carriers are quite active in this transition and some could argue, not looking back. For the hundreds of regulated rural ILECs across the country, this transition is a bit more complicated.

It’s Complicated
Much of the complications come from a legacy of regulations that continue to focus on plain old telephone service (POTS), or legacy dial tone, as these carriers’ primary service. This regulatory framework is complicated and it was designed to create incentives for carriers to build and maintain facilities and networks to deliver POTS to high cost rural territories and markets where, absent these incentives, POTS could not be delivered. Citizens who live in these territories would be without basic communications services if not for this legacy ‘universal service’ framework.

We in the telecom industry should never forget that this framework contributed greatly to building a telecommunications network that was (and in my opinion, still is), the envy of the world. These long standing policies ensured that all Americans, regardless of where they lived, had access to this communications network, and thus a window to the world. It was and is an admirable accomplishment.

But in today’s world, POTS is no longer the core service. We all know broadband is. That by no means suggests voice service is no longer important.  Everyone still wants to communicate. They just want to do it in different ways, on different devices, and in a manner that fits their lifestyle. All this talk about loss of access lines has nothing to do with consumers no longer wanting voice service. They just want it in a different way.

So back to the complications. Despite all the chatter and rhetoric that we hear around universal service reform for broadband and the new Connect America Fund, this POTS focused regulatory framework remains for the vast majority of regulated rural telcos. As of today, POTS is still king, from a regulatory, and thus a revenue perspective. But from a marketplace perspective, POTS has no future. What matters in the marketplace is IP communications, delivered in the form of applications across a variety of access mediums and devices, which empower end consumers and businesses to communicate in ways that weren’t even imagined just a decade ago.

Get Ahead of the App Curve
This “appification” trend for communications is only accelerating. One implication of a true IP network is the labels disappear. Today’s ILEC can offer wireless services in the form of an app downloaded to a smartphone, allowing that end user to talk wirelessly, using the core infrastructure of the ILEC. Wireless carriers can deliver a fixed broadband pipe and fixed voice service to the home. Everyone becomes simply an IP communications carrier, and if the regulations allow, carriers who effectively execute, can compete and win in any environment. Companies who call themselves communications carriers need to get ahead of this wave, or risk marginalization in the marketplace. It’s time to lose the labels of ILEC or telephone company or ISP, or even wireless carrier. In a few years, those labels will mean nothing. Becoming  a communications company that delivers a rich communications experience across any device should be the goal.

I borrowed Skype’s description of their company from their About Us page on their website:

“With Skype, you can share a story, celebrate a birthday, learn a language, hold a meeting, work with colleagues – just about anything you need to do together every day. You can use Skype on whatever works best for you – on your phone or computer or a TV with Skype on it.”

Nowhere on their website do they try to define themselves by what type of carrier they are. Rather, they define themselves by the communications experience they enable. Now I’m certainly not suggesting that rural telcos try to become Skype. But I am suggesting there is a lot that can be learned from Skype and other pure IP communications providers, as rural telcos continue their IP transition.

It’s Not Just About Fighting the Good Fight – Fight the Right Fight
I fear that an unintended consequence of the ongoing well-coordinated mobilization of the rural telecom industry to influence universal service reform, is a continuing propping up of POTS. This comes in the form of passionate arguments around ‘regression analysis’ and requests for waivers from the FCC, etc. Don’t misinterpret my view. I understand the importance of those issues and the devastating effect they can have on some rural telcos. But what I think is missing, is an equally, or even more passionate movement, to rid the rural telecom industry dependence on POTS entirely, by aggressively pushing for an accelerated transition to an all IP network.

This industry cannot afford to lose sight of ultimately what’s most important –successfully transitioning to an IP communications company. I’d like to see an equal number, if not more, of comments and ex partes at the FCC pushing them to change the regulatory structure for rural carriers to support an all IP network.  The hard truth is we have a finite amount of time to make this transition before it’s too late.  A long term rural telecom industry thought leader who would like to remain anonymous described it to me this way. “It’s like a tsunami is coming and everyone knows. Yet the rural telecom industry is too busy fighting the wrong fight, and when they finally look up and see the tsunami coming, it will be too late.”

Luckily, there are important efforts underway to address these concerns. The NTCA has filed a TDM-to-IP petition with the FCC that they hope addresses this issue. I spoke with Mike Romano, SVP of Policy at NTCA and he explained it this way. What the FCC has done with the Connect America Fund is talk about USF supporting broadband, without really addressing the legacy regulations that define POTS as the primary service for USF. In effect, “We’re operating under two sets of rules, and regulated RLECs still have to comply with the old rules that focus on TDM voice,” says Romano.

NTCA’s petition attempts to clarify these rules and give regulated rural telcos the ability to provide broadband only service (without an associated voice line) and receive USF support in doing so. Current regulations don’t allow this and as a result, rural telcos who offer broadband only services over a regulated network have to price it in such a way that it is not competitive. If NTCA is successful with this petition, that issue would go away, and rural telcos could provide a broadband pipe only (sometimes referred to as naked DSL) and layer IP communications apps across that pipe, as their market demands. It’s a game changer in my view.

“The regulations need to change in a technology neutral way to meet consumer demand in the marketplace,” Romano said.  Read Romano’s very insightful post regarding this important issue at NTCA’s New Edge blog.

In my view, this petition may be the most important rural telecom proceeding in front of the FCC. After all, the rural telecom industry may win the hotly contested regression analysis and associated policy arguments, but it will be for nothing if the “IP tsunami” arrives the next day and the industry is ill prepared for it.

Regardless of these regulatory arguments, my advice – define and execute your path to IP communications and put POTS in your rear view mirror, both as a service and as a mindset, as quickly as possible, by whatever means necessary.