March 20, 2003--Technology change, competition, and the growth of the Internet are having major impacts on the local exchange network, contends a new report from Technology Futures Inc. (TFI). Entitled "Transforming the Local Exchange Network: Review & Update," the report provides forecasts for the North American local exchange network, including switching, circuit equipment, and outside plant.
The research was sponsored by the Telecommunications Technology Forecasting Group (TTFG), a consortium of telephone companies comprised of Bell Canada, BellSouth Telecommunications, Qwest, SBC, Sprint, and Verizon.
"Across the network, technology change and competition are accelerating obsolescence and reducing the economic life of telco investments," explains Lawrence Vanston, president of TFI and co-author of the report. "This is happening in spite of regulatory uncertainty and the recent downturn in the telecommunications industry," he reports, adding that "Broadband adoption, wireless usage, and local competition continue to grow rapidly."
"Although down from the record highs of previous years, ILECs continue to invest significant sums in the local exchange network," notes Ray Hodges, senior consultant at TFI and report co-author. "And they will have to continue to invest to remain competitive, especially as wireless, cable telephony, and broadband continue to erode the traditional voice market."
The report also finds that:
The local exchange telecommunications industry has begun the transition from a narrowband network of circuit switches and copper cables to a broadband network of packet switches and fiber optics. This transition will largely be complete between 2015 and 2020.
Competition has arrived in the local exchange. CLECs have captured over 10% of the access line market. Residential and small businesses are abandoning second lines for cable modems and DSL, while wireless and cable telephony are displacing wireline usage and access lines.
Depreciation lives that fully take into account technology change and competition are generally consistent with those used by ILECs for financial reporting and somewhat less than lives often prescribed by regulators. This difference is primarily explained by the over-reliance of traditional depreciation methods on accounting retirements.