How will telcos convert voice-only customers to VOIP?

AT&T’s December 2009 proposal to the Federal Communications Commission recommending the phase-out of traditional POTS is very much a “big picture” document that leaves many details to be resolved later.

Although there has been ample coverage of the factors that are driving the company to make this recommendation, few news reports have attempted to identify the details that would need to be resolved if AT&T’s ideas were to be accepted. That’s something worth exploring, since AT&T’s proposal seems to have a lot of support.

AT&T suggests that voice service should be delivered in VOIP form over the broadband network it envisions will replace the PSTN. The company already is moving in that direction with its u-Verse offering, which supports voice in VOIP form over a converged platform for customers who also take either data or advanced video service.

AT&T’s proposal makes just one brief reference to customers who may want only voice service. The company asks the FCC to issue a Notice of Inquiry to address “how to ensure that the phase-out of the PSTN does not leave individuals who do not use computers without service.” The company points to the possibility of using inexpensive devices that allow VOIP customers to plug traditional telephones directly into broadband connections.

Installing those broadband connections, however, is almost certain to require a truck roll, noted Clif Holliday, president of B&C Consulting—an industry analyst who has been closely following broadband deployments such as u-Verse. And that could be very costly, Holliday said.

At first glance it might seem that this expense could really eat into the potential savings AT&T hopes to gain by phasing out POTS. In contemplating the end of POTS, however, AT&T and other telcos are shooting at a moving target.

Twenty-two percent of AT&T customers already have shut off traditional phone service, with more people making that choice every day. The company noted that its wireline revenues were down 5.3% for fourth quarter 2009, after four quarters of even steeper declines. And Verizon saw a 12.3% decline in access lines in 2009.

At that rate, the telcos will have a lot fewer voice customers to worry about by the time the POTS cutoff date arrives. The earliest date suggested for that is 2014. And many industry observers, including Teresa Mastrangelo, principal analyst for BroadbandTrends, predict it will be much longer.

“If you look at any country that has started to put transformation plans in, these are very lengthy periods—not five years,” said Mastrangelo.

The ongoing erosion of traditional voice service could be what has prevented Verizon from moving voice-only customers to its FiOS platform—a move the company talked about when it first launched the broadband service several years ago.

On the plus side, 65% of U.S. households now have broadband, according to the U.S. Census Bureau--and broadband services are growing at a rate of about 12-13% per year.

As telcos continue to bring broadband to more and more customers, it means more and more customers already will have a broadband connection over which VOIP could be delivered. And regulators have hinted that the National Broadband Plan, due in mid-March, also will include plans for increasing broadband take rates even further.

As for the few voice-only customers that will remain, it’s interesting to speculate what form the notification process will take. Incumbents would like to upgrade those people to video or data service while they’re making a truck roll anyway. And once a firm plan to roll up POTS is in place, carriers can begin telling customers about that eventuality as they roll out more broadband markets—a consideration which, properly packaged, could help generate more multi-play conversions.

There also will be some voice-only customers who will view the telcos’ notification about the end of POTS as the impetus they’ve been waiting for to go all-cellular. That could further reduce the number of truck rolls the carrier has to make—and generate more wireless minutes of use, assuming the carrier also has a cellular business. (For those small telcos that don’t have wireless business units, it will be a different story.)

Another consideration worth noting is that traditional voice lines support more than just voice service. Telcos also face an overhaul of the E911 system and may find they have to commit to relatively high-bit rate VOIP compression formats to accommodate other devices that use traditional phone lines, such as fax machines and alarm systems. The security industry and others also will be looking for the POTS replacement service to provide backup power akin to what is now delivered from telco central offices, which may be longer than the telcos now provide with fiber-based services that require power sources in the outside plant.

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