Changes in technology, the rise of competition, and the growth of the Internet are having impacts on the local exchange networks of North American telcos, a recently released report states. The report examining developments in the local infrastructure finds carriers are rolling out their networks as expected. Transforming the Local Exchange Network: Review & Update is a re-evaluation of several previous studies by Technology Futures Inc. (TFI). Among the reports being reassessed are The Impacts of Competition and Technology on Local Switching Assets (NL, Apr. 9/01), The Impacts of Competition and Technology on Local Exchange Outside Plant Assets (NL, Sept. 24/01), and The Local Exchange Network in 2015 (NL, Apr. 9/02). "The local exchange network will transition from a primarily voice network to a full-service network that provides a full range of communications services, including voice and high-speed data for Internet access," co-authors Lawrence Vanston and Ray Hodges write in the latest report. "The full-service network – based on fibre optics, advanced optical/electronic transmission equipment, and packet switching – will not only be more efficient for the combination of services it can offer, but will be more efficient for each service individually, including voice." The telecom analysts predict that the shift from metallic cable to fibre-optic cable should be completed sometime between 2015 and 2020. Fibre has many natural advantages over copper and other metals. In addition, new fibres are being developed that will be able to carry many more wavelengths on each strand. This will permit the expansion of capacity on the fibre networks. Another major transformation has been the evolution of switching equipment. Vanston and Hodges predict that eventually all voice and data traffic will be transmitted on packet switches. Currently, packet switches carry data while narrowband circuit switches transmit voice. "With data traffic growing at annual rates exceeding 100% and voice traffic growing at less than 10%, data has come to dominate the network, and data may soon represent 99% of the traffic on the network," the report states. The study, like most of TFI’s reports, was done on behalf of the Telecommunications Technology Forecasting Group, a coalition of seven telecoms in Canada and the United States. The Canadian representative on the eight-member advisory board finds the studies very helpful. "We talk to technology people if they can do something there for our existing clients to accommodate our customers for their demand for higher bandwidth," Hosein Moavenian of Bell Canada tells Network Letter. "And most of the time it’s trying to help us to use our existing network, to improve the existing network as well, with the minimum dollars that we can spend." New technologies emerging More efficient use of network resources will be necessary as competition increases. Not only are the ILECs battling with new entrants, they must also face the development of new technologies. "Facilities-based competition from cable telephony, cellular, and broadband will severely reduce the number of access lines provisioned by ILECs," the TFI report notes. "In fact, the number of ILEC access lines has already begun to decline. TFI forecasts that, by 2010, ILECs will provision one-third fewer access lines than today, and that, by 2015, less than half as many." Most of the information contained in the study is drawn from American data. Indeed, all of the examples used on competition cite U.S. cases. But Moavenian says Bell provides its own numbers, which are factored into the final report. The telephony markets in the two countries are closely tied, he maintains, and Bell and other telcos must be prepared for broad changes. "If they do some improvements down there in the States, it will come here. So we might as well get ready for it," he explains. "And the only way to find out about it is through these kinds of studies." CLEC penetration, larger in the United States than in Canada, is still small but growing. At the end of 2001, competitors accounted for 10.2% of end-user switched access lines, up from 7.7% a year earlier, the TFI report notes. The ILECs still make money from leasing access to their networks to competitors. But the windfall from CLECs and resellers will be short-lived, the authors state. "Adding resold and UNE lines to the ILEC access line count helps the outlook for ILEC facilities, but only so much and for so long. This is because the transition to facilities-based competition, especially by cable television companies, and wireless competition will reduce resale and UNE lines." Cable telephony was available to 1.5 million American subscribers in 2001. The report says cablecos could take 25% or more market share within a few years. Already, Cox Digital Telephone has 24% total market penetration in Orange County CA and AT&T Broadband has 18% market penetration in the Chicago area, rising to 40% in some surrounding suburbs. The primary competition is coming from the wireless sector and from broadband, the report states. More and more consumers are substituting wireless devices as their secondary, and in some cases, primary lines. The more people transfer their minutes-of-use from wireline to wireless, the easier it becomes for them to decide to dispense with wired telephones altogether. The impact of broadband is twofold. As consumers migrate to DSL and cable modems, they drop the second lines that had been used for data. A BellSouth study discovered that secondary lines peaked in April 2000. It also found that 60% to 70% of high-speed Internet clients get rid of the second line once they switch to DSL or cable access. The TFI report predicts that the advent of IP telephony will hurt wireline service. As technology improves in VoIP, customers will opt for the service. As a result, they will no longer need wireline phones. "Internet telephony is currently in its infancy, with a number of technical and administrative issues to overcome," the report says. "However, with the increasing power and diversity of the Internet, this competing service has the potential to take significant LEC and interexchange market share for voice services." Coincident with that will be a demand for increased speed, the report notes. What consumers regard as suitable speed today will not be so in the future. ILEC networks must adapt accordingly. TFI says that in 2001, with 54.2% of the population online, 10% use 1.5 Mbs to connect to the Internet, with another 0.1% using 6 Mbs. By 2010, when 94.3% of subscribers are online, no one will be using 1.5 Mbs. The vast majority, 89.3%, will be using 100 Mbs and above, TFI believes. Bell’s Moavenian points out that the data are gathered from several sources, not just the supporting telcos. Information from other communications companies is included to provide a broader picture of the current marketplace. Moavenian forwards copies of the TFI reports to the CRTC. Both Bell Canada and the commission use the data to bolster their arguments in public proceedings, he explains.