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Universal Service To Universal Access
© 1995 - International Research Center



Residential Telephone Subscribership Trends:

The FCC reports that in July, 1994 93.7% of U.S. households had telephones representing 92.4 million of the 98.6 million households. This was down slightly from a year earlier (94.2%) but up as a long term trend from November, 1983 rates of 91.4% penetration. The FCC also reports that in October 1993, the average for flat rate residential service was $18.82 monthly, including taxes and subscriber line charges. In most cities, consumers can subscribe to a service with a lower monthly charge than the cost of unlimited one party service. The average minimum monthly bill for such services was $11.27, including taxes and subscriber line charges. At the same time, the average business rate was a total of $42.57 monthly.

An interesting report published earlier this year by the Rutgers University Project on Information Policy was titled "Universal Service from the Bottom Up: A Profile of Telecommunications Access in Camden, NJ." The authors, Dr. Milton Mueller and Dr. Jorge Reina Schement, studied Camden with a telephone penetration level of 80.6%, well below the national average, but with racial and ethnic composition and income levels similar to other low-penetration U.S. inner cities. They explore and discredit six common myths of telephone penetration, at least for their particular study area and methodology:

Cable Television Enters the Competitive Arena:

Cable television originated in the late 1940s as a means to carry broadcast signals into mountainous areas where over-the-air reception was poor with a community antenna and coax cable redistribution of television signals. With increased channel capacity, over time, cable systems developed local programming and licensed additional content sources, expanding their markets through all urban and most rural areas. The National Cable Television Association (NCTA) reports that there are over 109 national and 37 regional cable networks as of April, 1995. These cable systems pass by 97% of television households capturing 63.4% (60.5 million) as basic cable households, carrying an average 40 channels of entertainment, information and community access programs.

Cable systems pay "franchise fees" to their local communities, typically 5% of revenue reaching $1.01 billion in 1993 (up from $51.2 million in 1980). The industry's Cable in the Classroom program provides over 65% of U.S. K-12 schools with free cable service and access to commercial free programming. Cable companies employ over 109,000 workers and have revenues of over $23 billion a year. Over the next five years, an estimated $24.9 billion will be spent upgrading the network with fiber optics (an estimated 69,000 miles installed to date), digital compression technology, bi-directional signal capabilities and a new generation of set-top boxes. This will allow eventual expansion of video services to interactive modes, movies on demand, voice communications and high-speed access to online services.

Indeed, existing cable systems, with their broadband capable last-mile coax passing 97% of American homes, are well staged with some strategic upgrades, to challenge the Local Exchange Carriers for basic telephone subscribership while continuing to deliver mainstay entertainment content. Cable companies will also expand into Personal Communications Services (PCS), like cellular phone service, utilizing their existing infrastructure to transmit signals from cell to cell. And they will utilize their high bandwidth capacity to enter the "private line" business market as alternative or Competitive Access Providers (CAPs). Cable modems will allow personal and business users high speed access to the Internet and online providers at multi-megabit per second speeds, hundreds of times faster than telephone modems.

But while cable expands its markets, its traditional delivery of television programming is under attack. Direct Broadcast Satellite (DBS) has emerged as a strong competitor to cable with small (18") dishes, up to 150 higher quality channels, coverage across the U.S., and ready availability at retail outlets. It is estimated that DBS will capture over 2 million subscribers by the end of this year and from 5 to 10 million by 2000. Meanwhile, local telephone companies, with new regulatory authorization, will move forward in their efforts to deliver "video dialtone" (VDT) over their infrastructure. This competition should act to constrain market prices as new strategic alliances engage the battle for the consumers video dollars.

Cellular and Other Terrestrial Wireless Expand Their Range and Services:

With a 45 percent annual growth rate, the number of U.S. cellular customers exceeded 28 million by the end of June, 1995, growing by more than 4 million users in the first half of 1995. About two out of every three new phone numbers are being assigned to cellular telephones. Average local monthly bills dropped to $52.45 per month from $58.65 a year earlier, and down 46% from 1987 when the average monthly bill was almost $100. The industry's revenue for the year through June, 1995 was $16.5 billion. In the first half of 1995, nearly 2000 new cell sites were added and a record $2.8 billion was invested for a cumulative total since 1983 of more than $21.7 billion. (Source : Cellular Telecommunications Industry Association)

At least 420 MHz of radio spectrum is being reallocated and auctioned by the FCC for Personal Communication Services (PCS) and related technologies. Compared to the 50 MHz of spectrum used by current cellular carriers (two per market), this represents the equivalent of 16 additional cellular services in each geographic market. Plus the transition from analog technology, still prevalent in most existing cellular networks, to digital with its associated compression and interference immunity, will multiply the carrying capacity of those networks. The Personal Communications Industry Association (PCIA) estimates that by 2000 there will be 14.8 million subscribers to broadband PCS services competing with traditional cellular, which is expected to have almost 50 million subscribers by then. In addition, PCS will serve an estimated 8.1 million subscribers with narrowband two-way services (i.e. - two-way and digital voice paging).

The Local Exchange Carriers will find increasing competition from these "wireless local loop" providers. A recent study by Economic and Management Consultants International projects 7 million customers will abandon traditional wired telephone service by 2002, for specially designed and priced PCS services where the mobile instrument uses a home-based cell for at-home use with automatic transfer to mobile facilities and rates when away from home. Additionally, such mobile instruments may transfer to satellite services when out of terrestrial cell site range and incorporate advanced features such as paging, voice messaging and even video conferencing.

Today 170 wireless cable operators serve 700,000 homes with Multipoint Distribution Systems (MDS) but modern wireless cable television technologies may more significantly encroach on traditional cable providers. New local multipoint distribution services (LMDS) can provide interactive video, data and voice services. Perhaps 16,000 subscribers will be served from one node serving a 6 mile radius cell. The downlink could contain 224 digital video channels and telephony with more limited uplink bandwidth available to subscribers.

Wireless is being increasingly deployed within enterprises and organizations to link Local Area Network nodes without network wiring installation and mobile business users rely more and more on wireless messaging and voice services as they roam their territory and the wider world. A very interesting proposal from Apple Computer, supported by the National Telecommunications and Information Administration (NTIA) is before the FCC. The petition requests that approximately 200 MHz of bandwidth be set aside for non-licensed low-power digital applications allowing for perhaps 20 million bit per second digital information rates at distances up to 6 miles. Digital spread spectrum technology would allow many simultaneous users to share this "citizens band" at no cost and without license, undoubtedly leading to enormous growth in wireless LANs, telemetry and other enterprise and personal applications.

Satellite Based Wireless Covers the Globe:

Satellite communications have long been the global linchpin for transport of high-capacity audio, multi-channel video, and volumes of digital data to remote locations. Home satellite reception developed to tap off the video programming flow for personal viewing until eventually portions were scrambled and licenses to receive and decrypt sold to consumers along with the necessary equipment. More recently, geosynchronous earth orbit (GEO) satellite systems have come online specifically targeted to consumers. These Direct Broadcast Satellite (DBS) systems (or Digital Satellite Systems - DSS) employ small dishes (18"), low-cost ($600-800) receiving packages, and cable competitive rates to deliver up to 150 channels of basic and premium video programming with high quality images and audio. Federal law currently prohibits these providers from delivering programming available locally including network television, PBS and local stations unless the consumer is in an area not reached by over-the air or cable services. Thus, for now, most DBS customers retain a basic cable subscription or antenna for local broadcast reception.

Global radio communications devices for consumer use will soon be practical with the upcoming launch of the Motorola-lead consortium's Iridium and other similar systems. Iridium will soon place 66 (and competitor Globalstar 56) low earth orbit (LEO) satellites in polar orbits insuring world-wide coverage. The new mobile telephones, as discussed above, will defer to the least expensive available connection, progressing from home-based cell to terrestrial cell to satellite as necessary. At long last, there will be a system deployable in rural areas at equivalent costs of infrastructure, equipment and (to a varying degree) usage. To the extent that these satellite systems succeed in the market and costs of ownership and use are driven down, long standing rural high-cost infrastructure and service delivery issues will at last fade. More ambitious visions, such as Teledesic (backed by Bill Gates and Craig McCaw), plan for 840 satellites linked to a fixed grid of 20,000 supercells across the earth's surface enabling higher bandwidth applications from fixed and mobile customers on a global scale.

Interesting hybrid options will occur, such as Hughes' DirecPC, which via a small satellite reception dish will allow subscribers to receive a personalized stream of digital data, such as Internet downlink at 400 Kbps while simultaneously uplinking low-bandwidth navigation commands through telephone lines and their Internet access provider. Additionally, the continuing evolution of Global Positioning System (GPS) applications combined with terrestrial transmitted weather and traffic data will drive vehicular navigation and other mobile applications.

Fiber Deployment - Telecommunications at the Speed of Light:

The first commercial fiber-optic cable was introduced by Corning Glass in 1970. By 1980, 3,700 miles were deployed and exponential growth has occurred ever since. Fiber's ability to carry very high bandwidth combined with its low bulk compared to copper trunk cable has made it the transport medium of choice for telephone, cable, and utility companies alike. Fiber deployment moves ever closer to the home as telecommunications providers design their networks to deliver higher bandwidth applications to consumers, but usually stops short of actually reaching those homes, merging with existing twisted pair or coaxial infrastructure at some distance away. Large business users often receive their long distance telephone connection from their Competitive Access Providers via fiber from metropolitan loops directly into their facilities. Within business enterprises, fiber optics are being more frequently employed as Local Area Network back often to the department level and even to the desktop, especially where high-end computer workstations are used.

Public utilities often install fiber cable along their right-of-ways, driven to abandon traditional microwave connections to remote facilities by FCC reallocation of radio spectrum. Where not prohibited by their regulatory oversight agencies, they may become resellers of fiber capacity or "dark fiber." Cities and states may also benefit from leasing right-of-way access either by fees or in exchange for municipal or government use of the commercial fiber infrastructure. For example, New York State recently granted a 20 year agreement for a fiber optic network to be distributed along the Thruway to be remarketed to other communications carriers. It is expected to stimulate economic development along its path and yield 20% of the network's gross revenues in payment to the state.

From POTS to ISDN to ATM:

Plain Old Telephone Service (POTS) has been the mainstay of personal and business voice communications for well over a century. It has evolved to support many new features and functions: touch-tone dialing, 911 emergency service, facsimile (fax) document transmission, computer data transmission via modem (from an original 55 baud to 28.8 K baud today), caller identification, call waiting/forwarding, voice mail, automatic credit card authorizations and remote applications from keypad entry. The mostly analog telephone instruments and signals have connected to an increasingly digital and complex infrastructure.

Integrated Services Digital Network (ISDN) moves the essential digital conversion of voice, allowing the integration of additional data forms, back to the subscriber's instrument. In doing so, it completes the digitization of the telephone network enabling existing copper wire infrastructure to support higher information rates, transport that information in its most efficient, digital form and makes possible a host of new services and applications as well. The RBOCs have been upgrading their Central Office equipment aggressively and ISDN is now available in from 70 to 100% of their territories. An estimated 650,000 lines will be in use by the end of 1995, and many millions more in the next few years. Pacific Bell estimates that they will deploy over a million ISDN lines in California alone by the year 2000.

Still problems abound. Special new customer premises equipment is necessary at substantial cost, though those costs are dropping. Specifications for installation and configuration are complex and often troublesome to get working properly. The providers themselves are often not yet familiar enough with the technology to provide adequate support. None the less, the transition from POTS to ISDN will persist. With ISDN, Internet access can be accelerated by a factor of four as effective baud rates reach 128K. Collaborative computing and telecommuting are further enabled as voice and data can be mixed so that documents and videoconferencing transmit simultaneously with conversation. It should serve well the Small Office or Home Office (SOHO) and Work-at-Home environments, becoming ever more prevalent.

Table 12: ISDN Rates for Business

Regional Telephone Network Installation Cost Monthly Rates Per Minute Rate
$.04 first, .04 +
Bell Atlantic
Bell South
Nevada Bell
flat rate
$.06 ($.01-$.55)
Pacific Bell
Southwestern Bell
flat rate
US West

(Source: Dataquest, Inc., Note: Residential Rates may be lower and all rates may vary by area)

For all its improvements in digitizing basic phone service at its source and all its promise, ISDN is still the first step for the telcos on the path to deliver broadband to the home. Network transport protocols such as Asynchronous Transfer Mode (ATM) must be overlaid on digital signal communications to allow bandwidth on demand and varying priorities to be assigned to different digital message packet streams. Twisted pair capacity will not be bound by current ISDN rates, but as research and development efforts bear fruit, move into the multi-megabit ranges to allow competition with other providers for the advanced services market as it continues to develop.

Personal Computer Ownership and Modem Use:

The rise of computer sales for home use should not come as any surprise. Most parents would like their personal computer to remain personal, which means that (for those who can afford it) a second home computer has become a necessity. Frequently, the kids' computer is better than the one the parents control, loaded with "educational" features. I hear a constant stream of stories from proud parents whose son or daughter has mastered the mechanics of their machine. Glorianna Davenport, MIT Media Lab in IEEE Multimedia Fall, 1995

Table 13: Trends in PC and Modem Ownership and Use

1994 % 1995 %
Household has a PC
Ever use home PC
Use home PC daily
Use home PC for Personal Use
Use home PC for Work
Use home PC for School
Use a PC at Work
Use a PC at Home
Home PC has a Modem
Someone in House goes Online from Home
Percent of Americans who go Online from Home
Subscribe to Commercial Online Service
Use Internet Directly
Connect to Office or School from Home

(Source: Times Mirror Center for the People & The Press, Technology in the American Household 10/16/95)

Table 14: Percentage of Households with a Personal Computer
by Income and Education

Family Income High School or Less Some College College Graduate
Under $30,000
$30,000 to $49,000
Over $50,000

(Source: Times Mirror Center for the People & The Press, Technology in the American Household 10/16/95)
(Note: Average 1995 Percentage of U.S. Households with PCs = 36%)

Table 15: Percentage of Households Who Go Online by Income and Education
(% of Population in Category / % of Computer Owners in Category)

Family Income High School or Less Some College College Graduate
Under $30,000
4 / 29
15 / 47
24 / 56
$30,000 to $49,000
8 / 28
17 / 36
26 / 47
Over $50,000
17 / 34
26 / 42
35 / 48

(Source: Times Mirror Center for the People & The Press, Technology in the American Household 10/16/95)
(Note: Average 1995 Percentage of U.S. Households Who Go Online = 11%)

In the Times Mirror Center study, of the 36% of American households with PCs, 21% have had them for more than two years, 11% for less than two years, and 4% though they own a PC, don't use it. An additional 9% had a PC at one time but gave it up. The Arizona Republic and Phoenix Gazette recently commissioned a study that showed Phoenix area computer ownership of 51%, well above the 33-36% of most national polls. It also showed that 22% of the total local population goes online versus much lower national numbers. They consider the margin of error to be 4% and no specific explanation of the higher Phoenix computer and online usage is readily available without detailed analysis of the study's methodology and sample group. Other interesting data on consumer attitudes regarding local telephone and high tech services competition is also presented.

Table 16: The Arizona Poll on Telecommunications

Yes No Don't Know
Do you have a computer at home?
Do you use the Internet or other online services such as America Online or Prodigy at home?

(Note: % of 73% of computer owners with modems)

Do you think competition between local telephone service providers will help hold down costs to the consumer?
Do you think competition between local telephone service providers will speed up introduction of new high-tech advances, such as videophone service and movies on demand?
Would you consider using your cable-TV provider to provide telephone service?
Would you consider using your cable-TV provider to provide a package of services like telephone, cable TV and computer data transmission?

(Survey conducted for The Arizona Republic and The Phoenix Gazette, 9/22-23/95, 600 Adults)

Gordon Moore, founder of Intel, proposed more than twenty years ago that semiconductor fabrication density of transistors in integrated circuits would improve rapidly and continuously leading to a doubling of memory chip capacity about every 18 months and a doubling of effective microprocessor speed every two years. Moore's Law, as it has come to be known, suggests that the microprocessors of today at some 4 million transistors will utilize 13 million by 2001 and 90 million by 2010 in ever denser, more efficient chips. Speed, processing capability and memory size driven by ever more demanding applications tends to obsolete our business and personal computers every other year or so. The trends in increasing computer power and capacity available at reasonable cost, access to higher bandwidth through public and private networks, and implementation of better signal compression technology will converge to drive incredible advances in multimedia enabled applications incorporating virtual reality elements.

Though the demand for portable computers has soared, Personal Digital Assistants (PDAs), handheld computers, have languished. PDAs will be reenergized by PCS and other emergent wireless connectivity and may well combine with mobile telephony into a single portable computer-phone instrument. On the low end, there is much talk of new, inexpensive ($500 price point) "Information Appliances." These limited functionality computers could be used in connection with the networked information infrastructure (client-server model) to serve most individual's needs (or so the story goes). How they will fare in the market and how a new generation of cable set-top boxes will position against personal computers for control of the media hearth in the home is yet to play out. Stay tuned!