AT&T is on a mission to build out its national fiber-to-the-home footprint and wants to forsake copper DSL, but it will have to wait on that endeavor in California. 

At a meeting last week, the California Public Utilities Commission (CPUC) voted to deny AT&T’s request to be released from its duties as the state’s “carrier of last resort” (COLR), and urged the company to upgrade copper facilities to fiber instead of trying to shut down the outdated parts of its network.

The agency said that because of AT&T’s status as the COLR, it must continue to provide basic telephone services, typically via landline, to anyone who requests it in its specified areas. 

“As the designated COLR, AT&T plays a pivotal role in providing reliable telephone service to communities across the state,” CPUC said in an announcement released last week. 

“Despite AT&T’s contention that providers of voice alternatives to landline service — such as VoIP or mobile wireless services — can fill the gap, the CPUC found AT&T did not meet the requirements for COLR withdrawal. Specifically, AT&T failed to demonstrate the availability of replacement providers willing and able to serve as COLR, nor did AT&T prove that alternative providers met the COLR definition."

Dallas-based telecom AT&T has long been trying to retire its expensive and lightly-used copper telephone wires (which power some of its landlines in rural areas) so it can allocate more funding to building fiber broadband connections.

AT&T CEO John Stankey wrote in a social media post in May that the company shouldn’t be expected to operate in areas where there is little business. 

“It’s time to do what capitalism is best suited to do,” Stankey wrote. “Deploy capital and resources to their highest and best use for customers, communities, and society at large.”

For its part, CPUC contends that AT&T is free to abandon copper DSL — it just needs to provide a low-cost, reliable connectivity option to California consumers. 

“AT&T’s public arguments paint the picture that the Commission’s COLR Rules require AT&T to retain outdated copper-based landline facilities that are expensive to maintain, or that AT&T needs Commission approval in order to be able to retire copper facilities and instead, invest in more modern technologies such as VoIP, wireless, and fiber,” CPUC wrote. “These arguments are not accurate.”

Still, AT&T is prohibited from revisiting the matter with the CPUC for at least one year — meaning it’s stuck with its COLR duties until at least next June.

“The law and facts of this case are such that AT&T’s Application must be dismissed with prejudice,” CPUC said. “The Commission’s COLR Rules require the presence of another COLR, either one already in place or one willing to replace AT&T. No other COLR serves AT&T’s service territory, and no potential COLR volunteered to replace AT&T.”

According the CPUC, it received more than 5,000 public comments from across eight  forums held about AT&T’s request to terminate its copper landlines.

CPUC said that its decision reflects its dedication to maintain service standards and address the residents who depend on telephone landline services.

“The COLR rules safeguard telephone service by ensuring Californians have access to at least one telephone company that offers reliable service, access to 911, customer protections, and affordable service through the state's Lifeline program,” CPUC president Alice Reynolds added. “We subsidize the COLRs through our high-cost fund programs to offset the cost of providing service in these remote areas.”

Despite its refusal, the committee did say it would open another inquiry to address COLR obligations, given changes in the marketplace.

Despite being ignored for years, landline voice service — once the cornerstone of cable’s triple-play bundle — is on the decline, but it’s not quite dead yet.

In fact, a new analysis from Sanford Bernstein telecom analyst Paul de Sa indicates cable can count on that revenue for quite a few more years.

Landline telephony has been almost an after thought in recent years, a service considered to be more of a retention tool than a product that brings in customers, like broadband or even video to an extent.

That is evident in buy-rates: Over the past five years, telephony adds for the four publicly traded operators have lagged broadband additions by a ratio of almost 2 to 1.

“By now, residential wireline voice service should have ceased to be,” de Sa wrote in his report. “There seems to be little reason why any consumer would pay $30 a month or more for a phone line.”

But the data shows a different trend, he noted. According to the National Center for Health Statistics National Health Interview Survey (NHIS), which obtained information from 21,517 households, more than half of the homes surveyed had a landline.

And the trajectory suggests landline service might not disappear for at least another decade or more, according to the data.

Landline voice customers won’t trend to zero at least until 2026, de Sa estimated, adding that he thinks there probably will always be a customer segment that retains a landline for emergencies or because wireless service is spotty.

Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak agreed that landline telephony still has some life left, but added that ARPUs will continue to decline.

“Overall, traditional fixed phone growth is likely to continue to decline but I imagine it will last longer than people think,” Wlodarczak said.

That could have similar implications for pay TV and telephone company digital subscriber line (DSL) service.

According to NHIS, wireless-only homes are generally younger: 71% of respondents aged 25 to 29 didn’t have a landline, compared to 19% of those older than 65.

But they also were less affluent: 67% of renters were wireless-only subscribers, compared to 37.3% of homeowners. Adults in poverty (59.3%) and near poverty (54.4%) were more likely than higher-income adults (45.7%) to live in a household with only wireless phones.

The Sanford Bernstein analyst had three reasons for voice’s slower-than-expected decline:

Inertia: The opportunities to buy residential telecom services are few: Mostly when a new household is formed, due to a change in address or because of unacceptably high levels of frustration with the current provider.

“The answer to the question of why households still have residential voice (or DSL or pay TV) in the face of new alternatives that appear to offer superior value propositions may just be that they’ve had it in the past and there’s no particular reason to change,” he said.

Segmentation: While usage patterns vary differently among households, the behavior of a particular segment is unlikely to be representative of the entire base. The NHIS data shows differences in voice penetration around age, household makeup and income, just as value propositions for slower, cheaper DSL service compared to cable broadband, or pay TV (with traditional or “skinny” bundles) compared to over-the-top video, will probably continue to be appealing to a large population segment.

Pricing and retention strategies: Voice ARPU has declined over the past decade, but that is largely due to segment-specific offers like bundling, instead of mass repricing. According to de Sa, there are ways to keep customers and maintain penetration rates by offering products with different price points (like varied amounts of long-distance minutes for voice, different speeds for broadband and different channel bundles for pay TV) and through discounts or other promotions when subscribers call to disconnect.

“As with mobile, the cost of these retention efforts is generally invisible to investors relying on reported financials, only being revealed in the long term as the offers work through the base,” de Sa wrote. “Metrics such as net adds and churn can therefore be misleading from a value-creation perspective, though they garner attention and drive stock movements around the quarter.”

Telephone Line

Cable telephony customer adds for the four publicly traded cableoperators (Comcast, Time Warner Cable, Charter and Cablevision) have lagged broadband by a nearly two-to-one margin over the past five years. (Figures in thousands)

                                 2010           2011             2012              2013                2014              Total

Telephony Adds. . . . 1,602. . . . 1,022. . . . . . 1,003 . . . . . . . . . 776 . . . . . . . 1,088 . . . . . . 5,410

Broadband Adds . . . 2,064 . . . 1,897. . . . . . 2,039 . . . . . . . . . 1,791 . . . . . . . 2,236. . . . . 10,027

SOURCE: Company reports