Analog Circuit Replacement: The race to the end of the PSTN - survey results

Editor’s Note:  In our last newsletter, Dan Belmont brought us up to date on the happenings in the telecommunications industry with the state of wire line carrier services and their bid to retire the old analog services that utilities use for critical communications utilities.  To follow up on that initial work, West Monroe Partners launched effort survey of public, private, and cooperative utilities nationwide to better understand the direct impact of this problem.  This survey included utilities of all sizes and pinpointed the key parameters of their analog circuit technology in use, public carrier service levels and costs, circuit reliability, carrier interaction, market perceptions, and initiatives in place to remedy this significant change. This article highlights what utilities are doing today to remedy this critical operational communications issue and outlines some potential next steps.

Introduction
Saying that the traditional phone network is aging is an understatement. Much of the network, like a lot of our grid infrastructure, has not changed fundamentally since electron switching systems were introduced around 1965. With the proliferation of internet protocol (IP) communications carrying data and voice over internet protocol (VOIP) over wire, fiber, and cellular networks, the reliance on traditional land lines is vanishing quickly.  Copper will not go away anytime soon, but the traditional public switched telephone network (PSTN) and its analog services will be going away well before the end of the decade.

The traditional telephone carriers, also known as the incumbent local exchange carriers (ILECs), have begun to ask, ”When can we eliminate support for the analog circuit business, and how long will it be before we can completely exit this business?” The infrastructure is now considered out of date, carrier revenue for these circuits is declining precipitously, and the maintenance and support costs continue to increase as the equipment ages. As a result, the ILECs are now looking at how to  transition the remaining analog circuits to digital circuits with VOIP and when they can eliminate support for this service–with the intent to shut down the PSTN as soon as possible.   

Utilities have traditionally relied on analog circuits for SCADA, security, protective relaying, and fire alarms and occasionally for distribution automation, substation automation, and AMI/AMR backhaul functions.  For the risk of reliability declines due to analog circuit failures will increase as carriers reduce support and attempt to transition the remaining customers off the PSTN.  

If you are not already doing so, you should begin planning and implementing replacement solutions for your utility’s existing analog circuit inventory.  Unfortunately, replacement solutions are not as simple as converting everything to IP.  Key questions to ask ahead of any deployment include:

  • What are the options for replacing these circuits? 
  • What are the costs of those options? 
  • What is the planning time needed to replace them?     

Time is of the essence, as the retirement of the ILEC provided carrier circuits is imminent.  Waiting until the circuit retirement is official may not provide adequate time for your telecom and IT teams to deploy a suitable replacement, or they will be forced into the singular attention of replacing equivalent functionality.  By starting now, you can investigate all available options, as well as look for opportunities to leverage the new solutions that provide additional bandwidth and IP capability for other substation- and location-based communications—ultimately delivering greater value.  Even if you already are doing something, are you working fast enough? Are you taking advantage of opportunities to use new communications in innovative ways?

The current situation for analog circuits
If the analog circuit PSTN is on its way to be terminated, what does this mean? Finding alternatives to analog circuits and converting over before you no longer have time to choose is imperative.  At a Goldman Sachs Conference on September 19, 2012, AT&T CEO Randall Stephenson remarked: “You don’t go out and put in LTE capability in rural America and leave up all your copper infrastructure in the long haul, it just wouldn’t make sense to do both. So this is the big regulatory issue.  The FCC would require us to leave that copper and TDM fixed-line infrastructure up by some mandated rules and you can’t do both. You can’t support both infrastructures. We have got to work through the regulatory implications of this, but I think LTE can prove over time to be a fixed line replacement in rural and less dense populations. I think in a five-year time horizon that can become significant.”

The Federal Communications Commission (FCC) is closely involved in this process.  A Technical Advisory Committee (TAC) comprised of industry leaders and FCC officials has been studying the PSTN network transition since 2010.1  The conclusion: The issue of an aging PSTN network is already here and growing quickly in magnitude.

Still not convinced of the urgency? 
As of the June 2011 the FCC TAC meeting, 25 percent of US households do not have a PSTN phone line in use in their home, and the December 2012 National Health Interview Survey (NHIS) conducted by the Centers for Disease Control and Prevention indicated that that the number of American homes with only wireless telephones has grown to 35.8 percent.2  Most projections estimate that by 2018, less than six percent of the population will have a PSTN line, as indicated in the chart below.  This creates the inevitable situation where revenue is declining, costs are increasing, and better feature-rich alternatives are available–collectively putting the legacy system on a fast path to complete elimination.


Source: National Center for Health Statistics

Remember when the large carriers tried to litigate Vonage out of business 10 years ago? That fight against VOIP is over, and the door to additional VoIP features and cable companies’ triple play packages is now open.  The carriers realize they cannot justify shoring up this aging infrastructure in light of the steep revenue decline generated from these services and weak competitive features. 

If you can’t beat ’em, join ‘em.  Carriers are quickly moving to the more feature-rich IP environments of broadband, fiber, and cellular LTE.  AT&T’s U-verse® offering, for example, utilizes copper cable for the last mile solution for video and data and pairs them with VOIP technology for voice.  As a result, the PSTN is no longer needed to provide quality phone service to residences and businesses.

The carriers in the FCC TAC group have already been lobbying for the FCC to set a final date for turning off the PSTN system altogether. Although this is the FCC’s goal as well, the carriers have to work to ensure that all public services have a viable alternative and that rural areas are not stranded without coverage.  There is a Carrier of Last Resort (COLR) designation with which the major carriers must comply.  Under this stipulation, a carrier must provide telephone service to all areas and any customers requesting it, regardless of economic viability, save for some extreme situations.  The carriers are working to move this COLR designation over to their cellular networks nationwide as evidenced by Randall Stephenson’s quote above. 

In the latter half of 2012, the FCC acknowledged that the investment in two competing networks does not make sense and that the focus should be directed toward one that would produce better features and capabilities for the entire country.  State regulators have begun to agree by granting wireless the COLR designation in several states.  This has prompted AT&T and Verizon to allocate incremental investments into those specific states.  As a senior sales executive from AT&T said on a recent conference call: “Our goal is to move every analog circuit we can to cellular.  Understanding some data requirements cannot be met with wireless technology we are moving people to T1s, MPLS and Metro Ethernet.” 

The consensus among utility customers is that all will start to see a significant decrease in reliability and service levels from the carriers, if they have not done so already.  Based on calls from carriers and the rapid reduction in the use of PSTN lines for residential customers, common opinion is that the network will be completely shut down within five to six years.

So where do utilities stand in this change today?
In an effort better understand the direct impact of this problem, West Monroe Partners surveyed electric utilities nationwide.  This survey focused on all sizes of utilities and pinpointed the key parameters of their analog circuit technology use, public carrier service levels and costs, circuit reliability, carrier interaction, market perceptions, and initiatives in place to remedy this significant change.

Survey sample profile
The distribution of responses returned was an even balance of large, medium, and smaller utilities.  The average number of circuits intuitively varies with utility size but can be grouped into three categories:

 Number of Customers Range of Circuits 
 > One million  300-700
 Between 100,000 and one million  100-300
 Fewer than 100,000  Under 100

The majority of these circuits service remote SCADA operations and substation phones, with security systems and fire alarms as secondary uses.  Other common uses included distribution automation, substation automation, protective relaying, and AMI/AMR backhaul.

The average cost of DS0 circuits did not vary significantly across the country.  A majority of survey respondents reported the cost of DS0 circuits falling in the $76-125 per month range, followed by $31-75 per month, as shown in the chart below:


Average Monthly Cost of DS0 Circuits

T1 data circuits, however, amassed an uneven distribution across most categories, showing significant variability in cost nationwide as indicated below.  A deeper dive showed that T1 costs also did not have any correlation to size of utility nor total number of circuits per account.


Average Monthly Cost of T1 Circuits

Although costs can vary significantly, this is only one component of the replacement business case. Reliability of circuits is on the decline, and the cost of trouble tickets, truck rolls, diagnostics, and repair tend to dwarf the monthly cost of the circuits.

Slightly more than two thirds of those who responded have not seen an increase in their monthly recurring charges for circuits.  Of the third that have had a year-over-year increase, the majority reported a single-digit increase.  Some utilities have seen double digit increases, with a few approaching the 25-35 percent mark, as depicted in the following chart:

 Respondents Year over year Monthly Recurring Charges (MRC) 
 67%  0% Increase
 32%  5%-9% Increase
 1%  10%-35% Increase

When asked whether they have observed changes in carriers’ support levels, 38 percent noted reductions in technical support, with nine percent stating that some support services have been eliminated.  Ironically, only 28 percent of respondents said they were notified of changes by the carriers.

Of those who have seen changes and/or have been notified that changes are coming, 40 percent said they already have experienced the changes in 2013, and 60 percent stated the notifications were for future reductions in service support and availability of circuits, or outright elimination of the circuits between 2014 and 2016.  This marks the beginning of the end for analog circuits.

Actions taken
When asked, “What are your short term plans for dealing with the leased circuits?” survey participants’ responses were evenly distributed across the following: 1) do nothing, 2) continue to support equipment on our own, 3) convert to new technology when sites are upgraded or changed,  4) begin transition planning process immediately, and 5) continue our active planning and converting.  Approximately 42 percent of responses fell into the final two categories.

The most common solution seems to be developing a packet-based solution over private wired or wireless communications, with carrier fiber running a distant second.  The biggest hurdle to act seems to be the absence of a pressing urgency.  For these, the situation has not yet developed into an immediate operational problem that justifies the time consuming and costly initiation of circuit conversions.

What you can do next

  1. Assess your entire network - Develop an inventory of your communications network.  Create or update your asset list, and then compare the list with your detailed carrier bills.  You are probably paying for a number of circuits that have been terminated and maybe for some circuits never disconnected even after you converted to a new technology like private wireless or fiber.
  2. Brainstorm options and opportunities to gain additional stakeholders - Maximize the benefits to the utility and not just for departmental needs.  Don’t just look at one application.  If you have circuits for SCADA into a substation, there is a possibility that are other circuits you can eliminate if you are bringing in a modern technology to enable IP in the sub.  There could be other RTUs, burglar alarms, fire alarms, substation phones, housekeeping alarms and others.
  3. Build a business case for this replacement right now - Depending on the number of circuits in a substation, a private network can actually have a positive return on investment and not just be a forced technology replacement investment.  Adding up all of the opportunity costs, trouble tickets, truck rolls, etc., starts to make a compelling case much sooner than you may believe.  Leveraging this replacement solution across all the other areas can maximize your impact on the business and financial return.

Combining these steps into a custom action plan for conversion can be detailed, time consuming and fraught with pitfalls.  Having the right roadmap and process to guide you through this transformation can make a big difference in the results. 

For more information on how your utility can realize its grid modernization vision through partnership with West Monroe, please contact Dan Belmont, Director – Energy and Utilities Telecommunications Group at 312-980-9385 or dbelmont@westmonroepartners.com.

1 - FCC Technical Advisory Council 
2 - The National Health Interview Survey (NHIS) conducted by the Centers for Disease Control and Prevention

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