Shutting Down the Phone System: “IP” Does Not Equal “Fiber,” “Fiber Does Not Equal IP.”

As regular readers know, I regard the upgrade of the phone system (aka the “public switched telephone network” or “PSTN”) to an all-IP based network as a majorly huge deal. As I’ve explained at length before, this is a huge deal because of a bunch of decisions the Federal Communications Commission (FCC) has made over the years that have fragmented our various policies and regulations about phones into a crazy-quilt of different rules tied sometimes to the technology (IP v. traditional phone (TDM)) and sometimes to the actual medium of transmission (copper v. fiber v. cable v. wireless). This whacky set of FCC decisions has produced a great deal of confusion about what we are talking about when we talk about the upgrade of the phone network.


As a result, people keep pointing out the same two things to me over and over and over. “AT&T is not switching to fiber to the home! Their upgrade is still copper!” The other is: “Verizon is pulling up all their copper in New York City (and everywhere else in the Sandy zone) and shifting customers from copper to FIOS without getting any permission from anyone!” These observations are usually made with the same fervor as Charlton Heston giving out his recipe for Soylent Green.


Allow me to debunk the Cult of the Copper Snake (with bonus points for recognizing the Biblical reference. And no, it isn’t the Golden Calf. It’s the Copper Snake.) You can have an all IP network that runs on copper, and you can run a traditional TDM-based network over fiber that is treated like a phone service. Both of these are different from a TDM-system that runs on copper.  All three are treated differently from each other from a regulatory perspective. I also must point out, in AT&T’s defense, that AT&T never claimed it was upgrading to fiber, and in fact has been quite specific that they are not going FttH (to Wall St.’s great relief and the disappointment of many others paying attention).


If you want to stop here, you can. If you want to find out why this is true, and why people keep confusing them, then you must continue on, delving into the minutiae of the last ten years of regulatory history. While a pain in the patootie to sort through (and I will do what I can to make it less boring where possible), it’s worth it if you want to understand what’s going on and how AT&T can be going on about how this is going to improve broadband and blah blah blah without ever promising to move to fiber to the home.

More below . . . .


The failure to understand the bizzaro, irrational, whacky crazy world of FCC “phone” regulation (Official slogan: “20 different policies, one service, WTF?”) is understandable. I can’t even get too mad at the FCC, given how often the D.C. Circuit has spanked the FCC on this issue when it tried to do the intelligent and consistent thing.  So lets go over the last ten years of regulatory history and marvel at what a long, strange, and very messy trip its been.


The Difference Between Fiber and Copper: The 2003 Trienniel Review Order


Lets start with the cut between fiber and copper. Back at the Dawn of the Millenium, when we had 6,000 independent wireline ISPs and telephone companies like Verizon supported “open access” for cable, Republicans took over the FCC. They had a very different philosophy than the Democrats, who believed that we should have competition by requiring telecom providers to share essential facilities. Republicans believed in “facilities based competition.” Because if you didn’t build it, you were a parasite sucking off someone else’s network and discouraging them from investing. Unfortunately for the FCC, the telcos were subject by law to a whole bunch of rules that allowed those 6,000 independent ISPs to have access to their DSL loops for resale. Dismantling all those rules so that the FCC could free the incumbent local exchange carriers (ILECs) aka the incumbent telcos, from the blood sucking grip of all those competing local exchange carriers (CLECs) and competing ISPs would take some time.


Also at that time, we wanted to see companies invest in fiber to the home. (Yes, we have been pushing for FttH for mor than ten freakin’ years now!) The ILECs repeatedly told the FCC that as long as they were required to share their networks with competitors, they would never, ever, ever build FttH. Why? Because getting a profit on wholesaling capacity was not enough “incentive.” In order to have enough “incentive” to build fiber to the home, the ILECs needed to be able to “capture” the entire customer just like their cable rivals. And even if consumers would benefit from having a much larger choice of providers, it didn’t matter because (a) ILECs weren’t going to build FttH unless the FCC gave the ILECs regulatory relief; and, (b) CLECs were just ‘takers’ and not ‘makers,’ and therefore unworthy of the provisions of the 1996 Act instructing the FCC to open up ILEC networks so that consumers could have lots of competitive choices.


Perhaps unsurprisingly, the Republican majority adopted this reasoning and, in 2003, issued an Order called the Trienniel Review Order (please don’t ask why). Of relevance here, the Order for the first time made a distinction in the legal obligations for ILECs that built Fiber-to-the-Home and those that didn’t. In exchange for actually building FttH, an ILEC would be free of the unbundling requirements that required it to share its facilities with competitors.


Because the FCC did this to provide incentive to ILECs to build fiber, this did not go the nature of the service and did not alter all the other obligations on the telephone component of the fiber line. If you offered traditional phone service over fiber, it still got regulated as a regular phone service – except for the parts the FCC explicitly exempted.


The Difference Between IP and TDM


Meanwhile, another change was happening. IP-based telephony started to get good enough that it could now seriously compete with regular telephone service. Vonage therefore filed a Petition with the FCC asking the FCC to declare that voice-over-IP (VOIP) services were not traditional phone services governed under Title II of the Communications Act, but “information services” governed under Title I of the Communications Act. Vonage also asked the FCC to preempt state public utility commissions who believed that if it looked like a phone, acted like a phone, used phone numbers, and got marketed to subscribers as a phone, then it was a freaking phone, dammit!


Confronted with the conflict between what the Communications Act actually says (“if it looks like a phone, and acts like a phone, and gets sold to the general public as a phone, it’s a “telecommunications service” regardless of underlying technology”) and what the FCC wanted to do (“oooohhhhh, magic IP pixie dust make nasty bad bad regulations be all gone”), the FCC temporized. Starting in 2004 with the Vonage Petition and the Minneapolis PUC case, the FCC generally preempted state authority and started making all kinds of distinctions. Computer-to-computer VOIP that didn’t use phone numbers was clearly an information service (so far so good, that doesn’t look like a phone). Then the FCC started to parse between “interconnected VOIP” (VOIP that connects to the PSTN) “nomadic VOIP” (VOIP services like Vonage that are not facilities based, but still act like phones) and “facilities based VOIP.”


The FCC refused to classify all flavors of VOIP other than computer to computer either as a Title I information service or a Title II phone service, although it did preempt the states from doing a lot of things. As a result, the default for any flavor of VOIP was ‘no regulation.’ Perhaps unsurprisingly, all the cable operators who had been providing phone service as CLECs under Title II promptly filed Section 214(a) requests to discontinue Title II telecom service and offer the exact service as an unregulated VOIP provider. While the FCC generally granted these requests, it also ran a couple of proceedings to determine how to regulate VOIP and applied a number of rules applicable in the Title II telephone world to VOIP (without deciding if it is Title I or Title II) through the mechanism of “ancillary authority” and a dash of Section 706.


So to the extent VOIP of any flavor has any regulation (with the exception of 9-1-1, which comes from the NET 9-1-1 Improvement Act of 2008), it comes from ancillary authority – which may or may not work, depending on what side of the bed your panel at the D.C. Circuit woke up on that morning (“D.C. Circuit – ‘cause who needs a rule of law?”).


Bring It All Together: AT&T Is Not Doing FttH and Verizon Is Ripping Out Copper


So to bring this all together here, when AT&T says it will invest $14 billion dollars to upgrade its network to all-IP, that doesn’t mean it will do fiber to the home. In fact, to its credit, AT&T has never pretended otherwise. AT&T has promised to rip out rural copper to some degree (although pointing out that they still need copper or something to run to cell towers to actually carry the traffic), but they were quite specific about the limits of their upgrade in their press conference in November. Heck, they talked about upgrading their DSL capacity for U-Verse by going to vDSL. DSL (of any flavor) is a copper-based technology. If AT&T says “we’re upgrading to vDSL” and other people hear “we’re going to put in fiber just like Google in Kansas City!” that is not AT&T’s fault.


Yes, AT&T has been boasting about how this is an upgrade to its network and bring better broadband to rural America and throughout its service territories. That’s true because the upgrade to go to VOIP and turn off TDM requires an upgrade of its current aging copper plant. But there is a big difference between “new and improved” and “we’re doing fiber.” No doubt AT&T is happy to profit from the confusion, just as McDonald’s is happy when people mistake “we make our fries without trans fats” for “our fries are now totally healthy for you.” But this isn’t a case of AT&T telling big ‘ole whoppers to credible legislators and offering magic beans (like they did in ’07 when they promised to lower prices if they got franchise reform). Ask AT&T and they will tell you upfront they are not doing FttH, although they will follow that with how wonderful the new and improved network will be.


Meanwhile, Verizon replacing copper with fiber is not “discontinuing a telecom service” requiring permission from the FCC under 214(a) – as long as they continue to offer “basic” TDM-based voice on their fiber system. What they are technically doing is upgrading their lines. Technically, this also requires a 214(a) permission from the FCC. But the FCC granted telecom providers blanket permission for all line improvements back in the 1980s, provided they keep offering the same services. True, CLECs filed a Petition with the FCC to regulate “copper loop retirement” back in ’07, because eliminating the copper cuts off access for CLECs and others that use the facilities – like alarm companies. While Verizon voluntarily suspended its copper loop retirement for awhile to see if the FCC would actually do something, nothing stops Verizon from going back to replacing copper with fiber like it was doing before the ’07 Petition was filed.





The most unfair thing about all this is that the 1996 Act tried really, really hard to eliminate all the stupid, arbitrary technological distinctions the FCC traditionally used to distinguish similar services for regulatory purposes. That why the definitional section keeps saying things like “without regard to the technology used.” But the FCC kept putting them back in, and any time they didn’t the D.C. Circuit would whap them over the head to force them to deregulate further (because who needs an expert agency when you have judges who are members of the Federalist Society?).  This leads not only to regulatory confusion and companies playing all kinds of regulatory arbitrage games. It also leads to the public having no understanding of what they are actually supposed to get with the upgrade of the PSTN to IP.


Until the FCC unsnarls the mess of definitions and classifications, we will continue to wing it. But we must not be seduced by the Cult of Copper in the mistaken belief that this is about copper v. fiber, or assume that because we are going to an all IP based network we will all get fiber to the home. This is why we at PK believing in focusing on the Five Fundamentals Framework at this point and less on these artificial distinctions. At the end of the day, the phone system needs to work, reliably and affordably, for all Americans. The technology may evolve, but the social needs and goals remain the same.


Stay tuned . . . .