Telecommunications and Natural Gas Industry

1. Telecommunications and Natural Gas Industry

2. Telecommunications • Voice (landline, wireless) • Video (cable, satellite) • Data (cable, wireless) • Convergence • Technology • Analog -> digital • The Internet • Data -> VoIP, Video

3. Changes • Telecommunications Act 1996 • Opened more competition • FCC does not regulate nascent technologies • Standard Products • Landline voice • High speed internet • TV/entertainment • Wireless voice/data • Oligopoly • AT&T • Verizon

4. Landlines • Mostly AT&T • Competition increases and creates distinction of local & long distance • Market forces cause local & long distance to no longer have a distinction

5. Long Distance Voice Market • During 70s the FCC allowed other companies(MCI, Sprint) to compete with AT&T. • http://www.youtube.com/watch?v=LCfSNdbUCXw • http://www.youtube.com/watch?v=NVAk8o7uCoU • Competition lead to decreased prices • Transition from Public Switched Telephone Network (PSTN) to private data networks and the Internet • Cellphones • AT&T was still regulated until 1995.

6. Local Voice Market • AT&T split into regions. • Local companies did not face competition until later than long distance • Competitive Access Providers and Alternative Local Transport Companies • create competition by charging lower prices for connection to long distance providers • Barrier for competition was the number switch • Rates have increase, because of the shift from per minute costs to per-line charges (number of users per line)

7. Public policies • Universal service – having a network available to everyone • Long distance was priced above MC • Local priced below its MC • Local rates increased but long distanced increased faster • E-rate => lower subsidized rates for education • Voice • Internet • Subsidy to lower rates for rural customers

8. Public policies • Intercarrier compensation – long distance had to compensate local telephone networks. • Traffic-sensitive (variable) vs. non-traffic-sensitive (fixed) • SLC set to low => access charges too high • FCC created the Presubscribed Interexchange Carrier Charge (PICC), local companies charge long distance companies. • Long distance companies added PICC to new customers rather than the per-minute charges.

10. Public policies • Reciprocal Compensation – payments for terminating local traffic. • CLECs would accept local traffic from long distance companies and pass it on to ILEC as local. • Pressure to lower access costs and make reciprocal compensation higher. • The Internet. • Example ISP customer of CLEC and internet user customer of ILEC => lots of money for CLEC • VoIP is even more complicated • Reform in the works

11. Wireless Voice • Cellular provider licenses • Landline company • Merit hearings and lotteries • Large demand • FCC auctions permits • Spectrum cap removal created mergers • Cingular(27), Verizon(24), Sprint-Nextel (12), T-Mobile (10)

12. Wireless Spectrum Auction • US auctioned off additional spectrum that was occupied by local television stations. • Verizon • AT&T • Frontline Wireless • Google

13. Wireless Networks • Regional Carriers and Roaming Charges • Nationwide carrier and growth in wireless subscribers & usage • Pricing • AT&T Digital One Rate in 1998 • Long distance landline calls decreased • Mobile-to-mobile pricing. • Contracting for service => contracting for phones • Family plans

14. Wireless Technology • 2G networks • Time Division Multiple Access – Cingular and T-mobile • Code division Multiple Access – Verizon, AT&T and Sprint • Costly to switch technologies • 1XRTT – adds more channels • Verizon

15. Video/Cable TV • VHF and UHF channels for over-the-air broadcast (now carried over cable and satellite) • 98.8% of homes are passed by cable • Was one-way, but is becoming two-way • Broadcast begins a slow death • Cable Act of 1992- gave broadcasters the right to forbid retransmission without consent.

16. Video/Cable TV • Wireless competition (DirectTV, Dish Network) • Comcast 23% • DirectTV 16% • EchoStar 12% • Time Warner 12% • Cox 7% • Mergers between cable TV and landline voice

17. Cable TV • Prices have increased over past several years • Regulated then deregulated several times • Municipalities regulated cable • Cable act 1984 removed regulation • Deregulation caused prices to rise • Cable act 1992 required FCC to regulate rates • TA96 removed rate regulation except for basic • A la carte pricing • Advertising by the number of subscribers => higher prices

18. Cable TV • Competition • RBOC, fiber optics, and the Internet Protocol TV (IPTV) • Vertical Integration • Cablevision – AMC • Cox – Discovery • Time Warner – HBO • Viacom – CBS • ABC – Disney • FOX – New Corp. • NBC – GE • Cable Act 1992 required cable firms to make programming available to rivals

19. Data • Started by DOD and universities and supercomputers • Privatized in 1995 • Easy-to-use applications increased demand • Late 90’s, demand for second lines increased • Increased demand for broadband • always on, 200k or higher • Cable modems provided cable access • First in market • DSL provide access over telephone network • Increased market share with lower prices

20. Wireless competition and concerns • Cities and local governments building networks • Subsidies from taxpayers create unlevel playing field • Net neutrality • Can’t charge for content, only access • Example, charge Google for sending data in a ‘faster lane’ • Criticism: paying twice for access • 3G networks provide broadband speeds for wireless networks

21. Telecommunications, Conclusion • Industry segments have begun to cross-over • Large multiple-market firms will continue to increase market share • Government involvement in industry • assigning property rights of spectrum use • Regulating rates • Regulating access