Over the Wire: Cable voice turnoff bends telecom competition regulations

Changes in regulatory policies in recent years have shaped wireline voice competition into a showdown between telcom providers and cable companies. But the model breaks down when one side changes the focus to profits instead of market-wide competition.

In telecom, a facilities-based local exchange carrier in the process of turning off as many as 1 million circuit-switched customer voice lines is big news – or at least it should be. In a flurry of regulatory filings that picked up speed at the end of August, Comcast quietly embarked on such a large-scale shutdown, requesting to decommission circuit-switched customers serving communities in California, Colorado, Georgia, Florida, and...

Utah to date. Time Warner Cable, which inherited some of Comcast's circuit-switched customers in August 2006 through an extensive property swap, recently filed to turn off more than 43,000 circuit-switched telephone customers in California. The cable companies' aim is to move these customers over from the old circuit-switched Comcast Digital Voice service – a holdover from its acquisition of AT&T Broadband – to their current generation of VoIP-based digital voice service.

There is precedent for carriers to turn off circuit-switched local telephone service and focus on a lifeline-like VoIP replacement. Embarq (under Sprint Local Telecommunications Division) and Verizon began replacing at least some local exchange switches with packet equivalents in 2003-2004. Cox Communications in 2003 capped its circuit-switched telephony build out and picked up with VoIP.

Yet Comcast's filings reflect that, since it is not a dominant carrier, there is no reason why it cannot turn off its service, as long as notifies customers first and supports calls to 911 and its call center for a month after service is shut off.

The new and disturbing twist is that Comcast is not carrying forward existing voice customers and service plans. Comcast VoIP service has just one flavor -- unlimited local/long-distance -- at a retail cost of $44.95 for a two-product bundle, with no broadband add-on for $42.95 a month rather than standalone price of $57.95 a month. This compares to a net retail monthly line charge of $27.47 for metered, circuit-switched service. There is no metered option for Comcast Digital Voice. Existing telephone subscribers are forced to make the decision either to buy unlimited service at a higher price, or leave. Those who leave may see the cost of other subscribed Comcast services like cable and high-speed Internet access go up sharply, if the customer no longer meets the cable company's requirements for bundling discounts.

The result for Comcast is increased profitability and likely revenue, too. The carrier does not break out Comcast Digital Voice numbers, but in March 2007, it had 2 million VoIP customers, and anywhere from 500,000 to approaching 1 million customers left on its legacy phone service.

Comcast's circuit-switched voice shutdown pulls another brick out of the misguided regulatory model that healthy competition is possible through two or three primary competitors. For high-usage, high-revenue customers willing to purchase "Triple Play" and "Quad Play" bundles, there is healthy competition. Comcast's choice to stop serving lower-end voice customers reduces an already thin field of lifeline voice options for budget-minded small offices and consumers. In Comcast territory, increasingly the only viable choice for these customers will become, once again, no choice at all.

Brian Washburn is the Research Director of Network Services for Current Analysis, Inc. www.currentanalysis.com

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