Broadband Access and Telephone Services

 
Broadband Access and Telephone Services
A previous chapter outlined the technical aspects of routing voice over 802.11. What are the economics
of replacing dial tone provided by the telephone company with voice over 802.11? As Vo802.11 is VoIP
using 802.11 as a means of access, the best approach is to study how VoIP replaces the PSTN dial tone
in residential and small business telephone service.
Advantages of Vo802.11 Vo802.11 has a number of distinct economic advantages over using the PSTN
and cell phone services. First, the cost of cell phone service is decreased by using Vo802.11 telephony in
an office or any 802.11-serviced locale. Some new technologies allow a voice-enabled PDA to be dualchannel
802.11 and Code Division Multiple Access/Global System for Mobile Communications (CDMA/
GSM). This capability enables an employee to talk over the 802.11 WLAN at the office or 802.11-serviced
home or home office when in those offices. Once the employee leaves the office, he or she can switch
over to a cell phone service provider if he or she has to make or receive calls.
Using Vo802.11 in the office can eliminate the cost of long-distance interoffice phone bills. Nearly 70
percent of corporate telephony is interoffice calling. This is an expense that can be eliminated by moving
a company's telephony onto its corporate network. If 802.11 becomes a primary means of access within
the company, then Vo802.11 would potentially eliminate much of a firm's phone bill.
A firm could eliminate all of its interoffice long-distance expenses by deploying a VoIP and 802.11
system. Calls routed over the corporate WAN would free the company from costs associated with
longdistance phone service. Local phone service costs could be eliminated as well. If firms employed
dual-frequency telephone handsets, all interoffice calls could be made on the corporate WAN. Local calls
could also be routed to other 802.11 or IP-enabled handsets without contact with the PSTN. Other
handsets could be reached using the cell phone network.
Soon the demand for broadband will reflect not only the growing potential uses of the Internet, but also
the prospect for using these broadband connections to obtain voice telephone services currently provided
over a narrowband connection. The use of broadband access to carry voice-ordinary telephone calls-as
well as data will deliver substantial savings to consumers that are not captured in current demand
estimates. Voice communications can be compressed, put in packets, and sent over an IP connection.
Microsoft Windows XP includes Session Initiation Protocol (SIP) software, which enables voice calls over
the Internet-usually all one has to do to enable voice communications on a networked PC is to plug a
headset into the audio ports on a computer and run the software. A broadband connection can support
several voice connections-the exact number depends on the speed of the connection and the degree of
compression of the voice signal. The current structure with two networks in the home (a voice and an IP
network) and two connections to the outside world (a narrowband analog connection and a high-speed
digital connection) appears inefficient. However, the transition to Internet telephony will take many years.
The cost savings from integrated access will be significant. Reliable Internet telephony would eliminate
the need for second or third lines in households for teenagers or fax machines. The FCC estimated that
the average household spent $55 per month on local and long-distance telephone service in 1999, and
each household with telephone service had 0.289 additional lines.[17]
Within a few years, broadband access will permit consumers to substitute other services for these
services that now cost $55 per month. The FCC estimates that the average residence spends $34 per
month for local telephone service and $21 for long-distance telephone service. Part of that local
telephone service cost is for the loop that is used for the broadband service. Consumers continue to incur
most of those loop costs when broadband service is used, but they avoid the cost of the analog line card,
the voice switch, and the voice transmission lines. Vo802.11 should lower the costs of both local and longdistance
telephone service while providing residences with the equivalent of several telephone lines.
Crandall and Jackson estimate that such savings could average $25 per month per household. In
addition, households with broadband service would get the equivalent of multiple voice telephone lines. It
is estimated that this additional service or option of service could be worth $10 per month to the average
household.[18] Thus, in the longer run (say, a decade from now), broadband access could deliver voice
communications benefits of about $35 per month, or $420 per year, to the average household with
telephone service. If it is assumed that 122.2 million households have telephone service, these benefits
would total $51.4 billion per year, assuming no growth in voice usage occurs. The actual value could be
much higher.
The substantial economic benefits (principally savings from expenditures on telephone service) created
by providing multiple services over a high-speed line almost cover the cost of a high-speed line-it has
been estimated that benefits of $35 per month are created by a broadband connection that costs $40 per
month. These savings are one reason why it seems reasonable to expect that the fraction of households
with high-speed access services will ultimately approach the fraction that has telephone service today.
Speeding up the adoption of broadband access provides benefits sooner. The present value of the
difference between the base adoption scenario and the much faster adoption scenario of the previous
example is 140 percent of one year's worth of the benefits of ubiquitous broadband adoption by
households.[19] Thus, if one assumed that, when fully adopted, broadband would generate benefits of
$300 billion per year to U.S. consumers, a policy change that moves our society from the baseline
adoption curve to the much faster curve would generate benefits with an NPV of about $420 billion.[20]
The increase in the present value of producers' surplus would be about $80 billion. This acceleration is
therefore worth $500 billion to U.S. consumers and producers. Table 8-10 lists the consumer benefits of
universal broadband deployment.
Table 8-10: Summary of consumer benefits from universal broadband deployment ($
billions per Year)
Source Low
Estimate
High
Estimate
Direct Estimates
Broadband access subscription 284 427
Household computer and network equipment 13 33
Total Benefits 297 460
Alternative Estimates-Benefits Deriving from:
Shopping 74 257
Entertainment 77 142
Commuting 30 30
Telephone services 51 51
Telemedicine 40 40
Total Benefits 272 520
How could speeding up the adoption of a technology have such massive benefits? The key lies in the
substantial benefits that ubiquitous broadband can convey to consumers. Once virtually everyone has the
service, the network effects from developing new services will become very large. Moving these benefits
forward a few years can create very large benefits-even when evaluated from today's perspective. The
powerful advantage of 802.11 over the current, dominant broadband technologies (DSL and cable
modem) is that in the words of Clayton Christensen,[21] it is "cheaper, simpler, smaller, and more
convenient to use." The lack of a requirement for wires and their incumbent, expensive rights-of-way
could potentially give the wireless service provider a significant advantage over the wired incumbent.