On Tuesday, the FCC released the third Local Telephone Competition report on subscribership to telephony service, both interconnected Voice over Internet Protocol (VoIP), as well as more traditional telephone lines.

Among the findings of the report:

• In December of 2009, there were 127 million traditional switched access lines in service and 26 million interconnected VoIP subscriptions in the United States, or 153 million wireline retail local telephone service connections in total.  Of these, 91 million were residential connections and 62 million were business connections.
• Interconnected VoIP subscriptions increased by 22% during 2009 (from 21 million to 26 million subscriptions) and switched access lines decreased by 10% (from 141 million to 127 million lines) for a combined annual decrease of 6% (from 162 million to 153 million total wireline retail local telephone service connections).
• Of the 153 million total connections in service at year-end 2009, 45% were residential switched access lines, 38% were business switched access lines, 15% were residential interconnected VoIP subscriptions, and 2% were business interconnected VoIP subscriptions.
• 84% of interconnected VoIP subscribers in December 2009 received service through a broadband bundle.
• 87% of these bundles were provided over cable modem; 13% via fiber to the premises (FTTP), DSL, or other wireline; less than 1% via fixed wireless or other connections.

The way that the FCC defined Interconnected VoIP service includes both companies like Vonage as well as cable and telephone companies that own their own networks. It’s important to note that all these voice services are different from circuit-switched telephone service, but are not all the same.

The IP data packets used by services like that of Vonage travel over the public Internet. Facilities-based cable offerings, in contrast, transport IP data packets over their private managed IP networks with end-to-end guaranteed quality of service (while still interconnecting with the public switched telephone network as necessary).

Over the last decade cable operators have shown tremendous growth in their voices services (see this chart), now serving  more than 23.5 million phone customers. Cable currently provides phone service to one in every four wireline phone households in the U.S.

As a result of this competition, consumers have seen savings in their bills. According to a study a few years ago by Microeconomic Consulting & Research Associates Inc. (MiCRA), consumers and small businesses across the country could save a total of $111 billion on their phone bills by 2012 as a result of competition. MiCRA estimated that residential consumers could save an average of $144 or more each year, while small businesses could save 50-70% on their phone bills – nearly $500 each year on average.

Recently, Hank Hultquist of AT&T posted some interesting food for thought on the evolution of voice services.  His general premise is that the traditional public switched telephone network (PSTN) is as outdated and old-fashioned in the telecom world as the Edsel is in the automotive realm.  Instead, we are moving to a world where voice service will be merely another application riding on a “broadband autobahn” of Internet protocol (IP) networks, and these IP networks will seamlessly interconnect without the need for pesky rules or government intervention.

NCTA agrees with many of the points raised by AT&T.  For instance, it is true that many of the rules created for the PSTN, designed to address a monopolistic environment, are arcane and badly in need of updating.  Nowhere is this more true than in the case of the intercarrier compensation regime, a complex set of regulations governing the payments companies make to each other to get a voice call from Point A to Point B.  It’s no secret that these rules are badly in need of repair – the FCC has been grappling with their reform for nearly a decade.  Given the challenges of applying these rules to modern networks, many in the industry agree that the Commission should consider eliminating these rules entirely, allowing entities to recover the costs of their networks from their customers, and handing traffic to other carriers who do the same.

But  AT&T’s premise breaks down (to continue the automotive analogy) when it suggests that problems applying existing compensation rules to voice services provided over IP networks (VoIP) somehow lead to the conclusion that there is no need to apply any rules to VoIP, and in particular no need for interconnection rules.  Although the telecommunications industry looks very different than it did when the PSTN was created, the Commission already has concluded that a number of key requirements, like E-911 and universal service fund contributions, should apply to voice services even when those services are provided over IP networks.

The Commission also is keenly aware that the ability to interconnect and exchange traffic with incumbent local exchange carriers (ILECs) is the cornerstone of a competitive voice market and that without some form of regulatory supervision, ILECs would  have the ability to deny interconnection to competitors.  For instance, while Mr. Hultquist sings the praises of IP networks in his blog post, his company has argued that it has no legal obligation to interconnect its IP network with the IP networks of its competitors or to exchange traffic with those competitors in IP format.  Because AT&T is by far the largest provider of voice service with nearly 140 million total voice lines (six times more than the entire cable industry), this is a matter of great concern.

Furthermore, to facilities-based providers of VoIP services, voice is not just another data application riding over an IP network.  Both cable operators and telephone companies, including AT&T, offer VoIP as a specialized service, separate from their broadband Internet access services offered to consumers.  VoIP packets are separated from other broadband traffic to ensure the quality of service necessary to keep calls from breaking up or dropping.  Without the ability to interconnect with incumbent networks, cable operators and other competitive VoIP providers would be unable to offer these voice services, which have generated billions of dollars in savings for consumers.

So, while it would be nice to be in a world where all VoIP providers could readily interconnect their IP networks, for now, some minimal rules of the road are required to ensure that the technology can reach its full potential.

In the new issue of Consumer Reports, the cover story is their annual look at TV, phone and Internet service (Here’s a news article about it.). Their description of cable’s position in the marketplace is perhaps the most positive that I’ve seen in CR‘s coverage, but I do have a few nits to pick with the article.

The good news is that some cable operators receive high marks from consumers about the service they receive. While some cable companies are not viewed positively, there seems to be a general air against incumbents. In other words, when it comes to video service, the incumbent cable providers are not viewed as positively as newer competitors; however, when it comes to telephone service, cable is viewed more positively than traditional phone providers.

In addition, Consumer Reports’ reader survey points out something that’s been known for some time: Customers who take bundled service are happier with their provider. Since cable first rolled out Internet access and then telephone service – as well as services such as DVRs, HD and digital cable – we have seen the take rates increase dramatically for the new services. Consumers are getting more out of their cable subscriptions, and by bundling Internet access and phone with their video service, they’ve also been able to see savings.

Now for a few factual problems…

The article lumps together the services provided by the phone companies (AT&T’s U-verse & Verizon’s FiOS) as “fiber-optic service.” In fact, while Verizon has widely deployed fiber, AT&T is still using twisted copper pair. You may recall that cable has a hybrid fiber-coaxial infrastructure.

A sidebar of the costs of TV service completely bungles its analysis of the impact of CableCARDs, but more distressingly, the article gets its description of E911 wrong.

Emergency 911 service varies among technologies. Fiber phone service uses the same long-proven location system as a landline phone. New cable-phone and other VoIP 911 services are less universally dependable.

The section on emergency phone use seems to confuse cable’s phone service, which transports your call over cable companies’ privately managed IP networks, with VoIP services such as Vonage, which use the public Internet for transport. The concern is that when a customer calls into a 911 operator, emergency responders should be able to know where the household is located – and that in the case of VoIP calls transport entirely over the public Internet, that may not be possible. Cable operators do not have this problem. As the article notes, phone service from cable or U-verse/FiOS may need to instead rely on a cell phone in the case of a power outage.

In a section on Internet speeds, the article argues that only 1 Mbps is necessary for most customers. That’s not a problem for cable customers, since the average standard speed typically exceeds 5 Mbps, but it seems a little silly to argue that very high speeds, such as cable is offering now through the DOCSIS 3.0 standard, are mostly a “marketing game.” Certainly, not everyone needs 50 to 105 Mbps, but I think 1 Mbps is hardly adequate these days.

I also found it telling that they buried the cord-cutting strategies at the back of the article. You can just rely on an antennae and over-the-air broadcast television, but if you have reception issues, then you’ll be out of luck. You can turn to the Internet, but content is limited there as well, and you’ll still need to subscribe to an Internet connection.

In the end, it seems like consumers are being serviced quite well by today’s vibrantly competitive marketplace.

Regular readers of Cable Tech Talk may remember an exchange between Verizon’s Tom Tauke and NCTA’s Kyle McSlarrow that took place last June.  At issue was an FCC decision into allegations that Verizon had violated retention marketing restrictions and actively tried to prevent customers from leaving only after the customer had put in a request to terminate their service and move their number to cable.

The phone company maintains custody of the number you own. When Verizon gets a request to terminate service and transfer your number, they have four days in which they must comply.  This is known as the porting interval.  Our argument then, as now, was simple.  Verizon has every right to offer its customers whatever package it sees fit to offer 361 days out of the year.  They should not, however, be allowed to use advance notice of customer defection as leverage against their competitors.

The FCC agreed, and found that Verizon had been improperly using the porting interval for the purposes of retention marketing.  Verizon, unhappy with the FCC’s decision, filed suit in the US Court of Appeals for the DC Circuit in an attempt to get the FCC decision overturned.

Today, the court reaffirmed the FCC decision that Verizon was violating federal privacy rights by illegally using the number porting window for last gasp offers.

The ruling is a boost for consumers who are already saving billions of dollars each year because they have switched to cable’s digital phone service.

Once you have decided to leave a provider, they should not impede your ability to do so.  This decision is good for competition and will ensure consumers can change local telephone providers without undue harassment by the incumbent provider. NCTA also favors reducing the porting interval to two days to further expedite consumer requests.

For our part, we look forward to the continued competition for your telephone business.

While I typically stick to discussions of policy issues, broadband, and emerging technology, when I see some really good news about cable and our ongoing efforts to improve customer service, I have to talk about it.

Recently JD Power and Associates released their annual rankings of customer satisfaction with both local and long distance telephone service.  The rankings measure five factors to determine overall satisfaction.

• Customer service
• Performance and reliability
• Cost of service
• Billing
• Offerings and promotions

For the the second year, cable companies won all four regions. The latest study proves what we’ve said for some time – cable is your best value for telephone service. You can learn more about cable telephony here.