How the Humble Telephone Is About to Bring Internet to the Masses (Again)

By Brian Fung

March 12, 2013

Ten years ago, if you went to pick up a phone call, your voice would have been carried across the same copper-wire technology that powered America’s very first telephone system. Today? With recent advances, at least some of your call would be routed through pipes that also carry Internet traffic.

This new way of handling phone conversation is mostly invisible, and it’s unlikely to make a huge difference in the way we actually place a call. But for a small share of Americans, the change could help them catch up to a new economy that’s largely left them behind.

What does a revamped telephone backbone have to do with lifting people’s fortunes?

It begins with a nationwide movement to replace the country’s ancient phone infrastructure with one that runs primarily on fiberoptic cables. Recall the last decade, when the country moved from analog to all-digital television. What’s happening now in telephony is a lot like that, only customers won’t have to lift a finger to experience its benefits.

Here’s how it works: Fiberoptic cables are super-efficient at transferring large amounts of data quickly; it’s the reason why Verizon can say its FiOS service is capable of downloading a feature-length HD movie to your computer in two minutes, less than the time it takes to microwave your popcorn. What the switch to Internet-protocol telephony does is move voice traffic onto those fiberoptic cables, and in so doing, make telephone calls indistinguishable from Internet traffic. Pretty soon -- telecom experts believe the all-IP transition will be complete by 2018 -- an ordinary phone call will work in much the same way that calls over Skype or Google Voice do now.

“Voice is becoming just another application riding over the Internet backbone,” said FCC commissioner Ajit Pai at a Q&A session in Washington last week. Instead of the divide we’re used to between voice and data, voice is simply going to become a form of data. Whether they realize it or not, many Americans already use this system. In fact, Pai said, less than one-third of the country still subscribes to what the industry colloquially calls POTS, or plain old telephone service. In some ways, “all-IP” is simply a codeword for putting POTS out to pasture.

As companies move more of their voice traffic onto high-speed fiberoptic networks, what bandwidth is left over will become conveniently available to thousands or perhaps millions who’ve never had access to high-speed Internet before. The expansion would be a boon to distant and disadvantaged parts of the country, where traditional Internet providers once balked at the cost of building to the last mile. It’s still expensive to rip up copper cables and replace them with fiber. But it’s much less expensive to do it as an upgrade to a system everyone already has rather than to build something out of nothing.

You aren’t going to wake up one morning and find every home connected to Verizon FiOS. In fact, even after the IP transition, many houses are still going to be connected to their local switch by copper. But what’s connecting the switch to the rest of the world will be fiber -- and overall, that’ll boost Internet bandwidth considerably, according to executives at Frontier Communications, a telephone company that serves mainly rural and small communities in the United States.

“We’re just starting to understand the benefits that are out there,” said Jennifer Schneider, Frontier’s vice president for legislative affairs. “I don’t know that we can quantify it right now.”

That hasn’t stopped some from trying. One approach taken by recent studies is to assess what’s called “consumer surplus,” or the gap between the highest price someone is willing to pay for a good and what they actually paid for it. When it comes to online tools such as e-mail, it turns out people are open to shelling out quite a bit -- even if the product is provided to them for free.

“On average,” reported The Economist, “households would pay €38 ($50) a month each for services they now get free. After subtracting the costs associated with intrusive ads and forgone privacy, McKinsey reckoned free ad-supported Internet services generated €32 billion of consumer surplus in America and and €69 billion in Europe.”

There are other ways to think about consumer surplus, The Economist added. Think of all the poking around in the Dewey decimal system you no longer have to do, thanks to online search engines. The search industry alone generates between $65 billion and $150 billion in time savings nationally every year, according to the report.

While wealthy America has surged ahead, in some cases creating whole new economies online and virtual currencies to use within them, those without broadband have been shut out and unable to participate even if they wanted to. Americans in rural and underprivileged areas would almost surely benefit from these consumer surpluses, just as the rest of us have.

It’s hard to say how a lack of broadband access may have actually held back economic development in these places. But we do know that a digital divide is alive and well in the United States. While the broadband penetration rate tops 90 percent among households making over $50,000 a year, that figure drops to 68 percent for homes bringing in $30,000-$50,000 a year, and to less than half in households making under $30,000.

Now let’s look at the problem geographically. Two percent of respondents to a survey conducted by the Leichtman Research Group said broadband simply wasn’t available in their area. Of that group, a majority said they’d buy a high-speed subscription if they could. Overall, about two-thirds of a percent said they wanted to get broadband but couldn’t afford it.

Two percent of America doesn’t sound like a lot. But it’s actually about 6 million people -- more than the population of Los Angeles, the second-largest city in the United States. Imagine if LA and its surroundings suddenly dropped off the face of the Web and couldn’t get back on.

The transition to all-IP telephony should help close the digital divide for some of the country’s neediest. It may not make a huge difference right away or even within a few years. But if the trajectory of these Americans resembles anything like that of their urban counterparts, we might expect great things from them.

By Brian Fung

March 12, 2013