TFI: New Telecom Report

FOR IMMEDIATE RELEASE

PRESS CONTACT
Ms. Carrie Vanston,
Media Relations Director
(800) TEK-FUTR, (512) 258-8898
E-mail: cvanston@tfi.com

READER CONTACT
Ms. Debra Robison,
Publications Sales
(800) TEK-FUTR, (512) 258-8898
E-mail: info@tfi.com

New Telecom Report by Technology Futures, Inc.

Transforming the Local Exchange Network: Third Edition

AUSTIN, TX, March 2006--According to a new report by Technology Futures, Inc.(TFI), incumbent local exchange networks (ILECs) have no choice but to invest in new technology and offer high-speed broadband and video to stay in the game. The report, Transforming the Local Exchange: Third Edition," written by Lawrence K. Vanston, Ph.D., (President, TFI) and Ray L. Hodges (Senior Consultant, TFI), presents the latest TFI forecasts for the North American local exchange network covering switching, circuit equipment, and outside plant. It also includes TFI's latest recommendations on depreciation lives for local exchange telephone plants, accounting for technology displacement, and loss of access lines due to competition.

Discussing the report, lead-author Dr. Vanston states, "Wireless, cable telephony, and VoIP continue to erode the traditional voice market and destroy the value of traditional ILEC assets such as copper cable and circuit switches. We forecast that by 2010, ILEC narrowband access lines will have fallen to 71 million down from a peak of 187 million in 2000. (See Chart 1..) By 2010, about 75% of U.S. households will have broadband service, and about 12% of households will subscribe to very high-speed broadband (at least 24 Mb/s). (See Chart 2..)

He continues, "Since we last updated the report in 2003, a major change in perception has occurred in the industry. Before, our forecasts of distribution fiber, very high-speed broadband, VoIP, IP video, and HDTV video were regarded as speculative. Now, it's a question of how fast. That's what this report addresses."

The research was sponsored by the Telecommunications Technology Forecasting Group (TTFG), a consortium of telephone companies comprised of AT&T, Bell Canada, BellSouth Telecommunications, Qwest, and Verizon.

Key Findings from "Transforming the Local Exchange Network: Third Edition":

Technology change, competition, and the growth of broadband have accelerated their impacts on the local exchange network. By 2010, ILEC narrowband access lines will have fallen to 71 million down from a peak of 187 million in 2000. By 2010, ILEC narrowband access lines will have fallen to 71 million down from a peak of 187 million in 2000. (See Chart 1..)
The local exchange telecommunications industry is transitioning from a narrowband network of circuit switches and copper cables to a broadband network of packet switches and fiber optics. This transition will largely be complete between 2015 and 2020, but probably not much before.
Increasing bandwidth is now mandatory for ILEC, but the best way to do it depends on a number of factors and the ultimate winner is still unclear to the dispassionate observer. (See Chart 2..)
Depreciation lives that fully take into account technology change and competition are still generally consistent with those used by ILECs for financial reporting and those previously recommended by TFI. They imply that property tax valuations may be too high in some jurisdictions.

Who should read this report?

Incumbent Local exchange carriers
Competitive LECs
Cable TV companies
Internet service providers
Telecom equipment manufacturers
Regulatory personnel
Depreciation professionals
Property tax professionals.

A table of contents and list of figures follow this press release.

We would be pleased to have this report reviewed by your publication and/or be cited for articles examining the subject matter. Dr. Vanston and Mr. Hodges would also be glad to be interviewed and quoted for articles relating to the subject matter.

Lead-author Lawrence K. Vanston, Ph.D., is an internationally- recognized authority in the use of technology forecasting in the telecom industry. His research reports and forecasts are used and referenced extensively worldwide. The September 21, 1998 issue of "The Wall Street Journal" featured an in-depth interview entitled "Consultant's Call: Lawrence Vanston Makes Some Pretty Bold Predictions for the Future of Telecommunications. He Has Been Right Before." Notably, the predictions therein have likewise come true.

Co-author Ray L. Hodges brings over 30 years of telecom expertise and experience to his work at TFI, including 25 years with GTE Telephone Operations. Mr. Hodges' views and the results of his research have been cited by such publications as "Telephony," "America's Network," "Lightwave," "Wired," "Inter@ctive Week," and "Wireless Systems Design."

For 28 years, TFI has helped organizations plan for the future by offering outstanding technology forecasting, strategic planning, trend analysis, and strategic market research services and publications in high-technology and telecom technologies. Drawing on proven, quantifiable forecasting methods and strategic applications, we combine the vision of the futurist with the down-to- earth judgment of the technologist. Let us be "Your Bridge to the Future."

We are always happy to comment on the subjects of technology and telecom trends. For a list of many of the citations by our staff members, please see TFI News.

PRESS CONTACT: Please contact Ms. Carrie Vanston at (800) TEK-FUTR, (512) 258-8898, or cvanston@tfi.com to with questions about the report and/or to arrange an interview with Dr. Vanston, Mr. Hodges or other technology and telecom experts at TFI.

PURCHASING CONTACT FOR YOUR READERS: Report details and ordering information is available at http://www.tfi.com/pubs/r/r02006_tlen.html. Readers interested in purchasing a copy may also contact Debra Robison, Technology Futures, Inc. at (800) TEK-FUTR or (512) 258-8898, fax (512) 258-0087, or send email to pubsales@tfi.com. The 150-page report is $2,495.

Thank you for your attention.

# # #

March 2006
Technology Futures, Inc.
13740 Research Boulevard, Building C
Austin, TX 78750
(800) 835-3887 or (512) 258-8898
Fax: (512) 258-0087
www.tfi.com

New Telecom Report by Technology Futures, Inc.

"Transforming the Local Exchange Network: Third Edition"

Table of Contents

Chapter 1: Introduction and Summary

Network Architecture Options
How Fast?
Impacted Investment
Drivers for the Transformation of the Local Exchange Network
Competition
Broadband Evolution
IP Television
VoIP
Network Technology Forecasts
Switching Equipment
Circuit Equipment
Metallic Feeder Cable
Metallic Distribution Cable
Non-Metallic Cable
Summary of 2005 TFI Depreciation Life Recommendations

Chapter 2: Competitive Impacts on ILEC Access Lines

Current Status
Access Line Forecast
Forecasting Approach
Key Forecasts
Impact of Wireless, Broadband, and Non-Carrier VoIP on Wireline Access Lines
CLEC Market Share
Impacts of Cable Telephony
Broadband Growth
Comparison to Previous Forecasts

Chapter 3: VHS Broadband

Status and Forecast for Broadband Access
Drivers for Higher Bandwidth
Forecast of Households with Very-High-Speed Broadband Access
Forecasts for Broadband Video
VHS Broadband Availability Requirements
Summary
Chapter 4: VHS Broadband Architectures

PONs
BPON
EPON
GPON
Fiber-to-the-Curb
Fiber-to-the-Node
Active Ethernet

VHS Broadband Deployment in Korea and Japan
Chapter 5: Switching Equipment

Switching Technology Transitions
Circuit Switching
Packet Switching
Forecast for the Substitution of Packet for Circuit Switching
Depreciation Recommendations for Digital Switching
Depreciation Background
Depreciation Approach for Digital Switching
Survivor Curves and Lives

Chapter 6: Circuit Equipment

Circuit Equipment Transitions
Depreciation Recommendations for Circuit Equipment
Depreciation Background
DLC and T-Carrier Transport
ATM, WDM and SONET Transport Equipment
DSL Equipment

Test and Miscellaneous Equipment
Consolidated Survivor Curves and Lives
Chapter 7: Metallic Cable

Metallic Feeder Cable Forecast
Forecast of Fiber Feeder Availability
Forecast of Conversion to Fiber Feeder
Metallic Carrier Displacement
Correction of Prior Historical Data

Metallic Distribution Cable
Forecast of Conversion to Distribution Fiber
Comparison of Feeder and Distribution Fiber Conversion Scenarios
Depreciation Lives for Metallic Cable

Chapter 8: Non-Metallic Cable

Physical Mortality
Technology Obsolescence
Non-Zero Dispersion Shifted Fiber
NZDSF Large Effective Area Fiber
Coarse Wavelength Division Multiplexing and Full Spectrum Fiber

Technology Substitution
Substitution Based on Distribution Scenarios
Substitution Based on Historical Analogies

Architectural and Topological Obsolescence
TFI Recommendations for Non-Metallic Cable Depreciation
Depreciation Background
Summary of Non-Metallic Depreciation Recommendations

List of Figures with Featured Graphs

1.1 ILEC Narrowband Access Lines and Broadband Connections

1.2 Broadband Households by Nominal Data Rate, Percentage of Households

1.3 TFI Forecast of U.S. Households Using High-Definition IP Video

1.4 Minimum Availability of Very-High-Speed Broadband

1.5 Number of ILEC Narrowband Access Lines on Circuit and Packet Switching (Base Forecast)

1.6 Combined Survivor Curves for DLC and T-Carrier Transport--Middle Scenario

1.7 Substitution of Fiber Cable for Metallic Cable in the Feeder Plant

1.8 Distribution Fiber Scenarios

1.9 Homes Passed by Distribution Fiber versus Homes Converted to Fiber from Metallic Cable

1.10 Substitution of Advanced Fiber for Standard Single-Mode Fiber Optic Cable--Alternative Scenarios

2.1 Forecast Narrowband Access Lines by Carrier Type

2.2 Forecast ILEC Narrowband Access Lines and Broadband Connections, Including Resale/ UNE

2.3 Residential Narrowband Access Lines per Wireline Household

2.4 Forecast CLEC Percentage of Residential and Small Business Access Lines

2.5 Forecast CLEC Percentage of Other Non-Residential Access Lines

2.6 Cable Telephony Share of Residential Wireline Access Lines

2.7 Forecast Residential Broadband Connections, Percentage of Households

2.8 Forecast Total Broadband Connections, Standard and Very High-Speed

2.9 Forecast Total Broadband Connections by Access Technology

2.10 Comparison of 2003 and 2005 TFI Forecasts of Narrowband Access Lines by Carrier Type

2.11 Comparison of 2003 and 2005 TFI Forecasts of ILEC Narrowband Access Lines and Broadband Connections, Including Resale/ UNE

3.1 Forecast Broadband Households, Percentage of Households

3.2 Adoption of Various Consumer Communications Products and Services

3.3 Broadband Households in the United States and South Korea

3.4 Forecast of HDTV Households

3.5 Broadband Households by Nominal Data Rate, Percentage of Households

3.6 Trend in Residential Access Data Rates

3.7 Forecast Adoption of Standard and Very-High-Speed Broadband, Percentage of Households

3.8 TFI Forecast of U.S. Households using IP Video

3.9 TFI Forecast of U.S. Households Using High-Definition IP Video

3.10 Comparison of High Definition IP Video and 24 Mb/s Broadband Bandwidth Forecasts

3.11 Minimum Availability of Very High-Speed Broadband

4.1 PON Architecture

4.2 BPON Architecture

4.3 FTTC Architecture

4.4 FTTN Architecture

4.5 Worldwide Packets Active Ethernet System

4.6 Active Ethernet Implementation

4.7 Alternative Architecture Bandwidth Comparatives

4.8 Speed of Broadband Access--National Targets

5.1 U.S. Local Switching Technologies, 1950-2020

5.2 Generic Local Switch Architecture

5.3 Voice Versus Data Traffic

5.4 Substitution of Packet Switching for Circuit Switching for ILEC Voice Access Lines

5.5 Substitution of Packet Switching (ATM/IP) for Circuit Switching for ILEC Voice Access Lines (2003 Forecast)

5.6 Number of ILEC Narrowband Access Lines on Circuit and Packet Switching (Base Forecast)

5.7 Number of ILEC Narrowband Access Lines on Circuit and Packet Switching (Base Forecast)

5.8 Replacement of Successive Generations of Switching Equipment

5.9 Survivor Curves for Digital Circuit Switching--Base Forecast

5.10 Survivor Curves for Digital Circuit Switching--Late Scenario

6.1 Adoption of Optical Transport and Access Network Equipment

6.2 Combined Survivor Curves for DLC and T-Carrier Transport--Early Scenario

6.3 Combined Survivor Curves for DLC and T-Carrier Transport--Middle Scenario

6.4 Combined Survivor Curves for DLC and T-Carrier Transport--Late Scenario

6.5 Surviving Value and Depreciation Lives for ATM, DWDM, and SONET Transport Equipment

6.6 Life-Cycle for DSL Equipment Based on Adoption of 24 Mb/s Broadband and Distribution Fiber (Late Scenario)

6.7 Combined Survivor Curves for DSL Equipment

6.8 Price Trend for DSL Equipment

6.10 Composite Survivor Curves for Circuit Equipment Categories--NOT Accounting for Competitive Impacts

6.11 Composite Survivor Curves for Circuit Equipment Categories--Accounting for Competitive Impacts

7.1 Substitution of Fiber for Metallic Cable in the Feeder Plant--Trend (Not a Forecast)

7.2 Minimum Fiber Feeder Availability Requirements--Percentage of Access Lines

7.3 Substitution of Fiber Cable for Metallic Cable in the Feeder Plant: Access Lines Converted to Fiber Feeder

7.4 Relationship Between Fiber Feeder Minimum Availability and Metallic Conversion Scenarios

7.5 Feeder Access Lines by Serving Technology: Middle Scenario

7.6 Multiple Substitution Analysis of Feeder Access Lines by Serving Technology: Middle Scenario

7.7 Comparison of ARMIS Fiber Feeder Data and Corrected Data

7.8 Distribution Fiber Scenarios

7.9 Comparison of the Early Distribution Fiber Scenario and the Required Availability of Very-High-Speed Broadband

7.10 Comparison of the Middle Distribution Fiber Scenario and the Required Availability of Very-High-Speed Broadband

7.11 Comparison of the Late Distribution Fiber Scenario and the Required Availability of Very-High-Speed Broadband

7.12 Homes Passed by Distribution Fiber versus Homes Converted to Fiber from Metallic Cable

7.13 Access Lines Converted from Metallic Cable to Fiber as a Percentage of ILEC Access Passed by Distribution Fiber

7.14 Access Lines Converted from Metallic Cable to Fiber: Comparison of Distribution and Feeder Scenarios

7.15 Survivor Curves and ARL for Metallic Feeder Cable--Early Scenario

7.16 Survivor Curves and ARL for Metallic Feeder Cable--Middle Scenario

7.17 Survivor Curves and ARL for Metallic Feeder Cable--Late Scenario

7.18 Survivor Curves and ARL for Metallic Distribution Cable--Early Scenario

7.19 Survivor Curves and ARL for Metallic Distribution Cable--Middle Scenario

7.20 Survivor Curves and ARL for Metallic Distribution Cable--Late Scenario

8.1 Age-Survivor Curve for Fiber Optic Cable

8.2 Survivor Curve (Installed Base)

8.3 North American Data-Rate Projections

8.4 Substitution of Advanced Fiber for Standard Single-Mode Fiber Optic Cable?Based on Distribution Fiber Adoption Scenarios

8.5 Mortality and Technology Survivor Curves for Standard Single-Mode Fiber Optic Cable--Technology Substitution Based on Middle Scenario Distribution Fiber Adoption (Not Accounting for Competitive Impacts)

8.6 Combined Survivor Curves for Standard Single-Mode Fiber Optic Cable--Technology Substitution Based on Middle Scenario Distribution Fiber Adoption

8.7 Substitution of Advanced Fiber for Standard Single-Mode Fiber Optic Cable?Based on Interoffice and Feeder Fiber for Metallic Substitutions

8.8 Mortality and Technology Survivor Curves for Standard Single-Mode Fiber Optic Cable--Technology Substitution Based on Interoffice and Feeder Fiber-for-Metallic Substitutions (Not Accounting for Competitive Impacts)

8.9 Combined Survivor Curves for Standard Single-Mode Fiber Optic Cable--Technology Substitution Based on Interoffice and Feeder Fiber for Metallic Substitutions

Back to Technology and Telecom Reports Press Releases

1.1	ILEC Narrowband Access Lines and Broadband Connections
1.2	Broadband Households by Nominal Data Rate, Percentage of Households
1.3	TFI Forecast of U.S. Households Using High-Definition IP Video
1.4	Minimum Availability of Very-High-Speed Broadband
1.5	Number of ILEC Narrowband Access Lines on Circuit and Packet Switching (Base Forecast)
1.6	Combined Survivor Curves for DLC and T-Carrier Transport--Middle Scenario
1.7	Substitution of Fiber Cable for Metallic Cable in the Feeder Plant
1.8	Distribution Fiber Scenarios
1.9	Homes Passed by Distribution Fiber versus Homes Converted to Fiber from Metallic Cable
1.10	Substitution of Advanced Fiber for Standard Single-Mode Fiber Optic Cable--Alternative Scenarios
2.1	Forecast Narrowband Access Lines by Carrier Type
2.2	Forecast ILEC Narrowband Access Lines and Broadband Connections, Including Resale/ UNE
2.3	Residential Narrowband Access Lines per Wireline Household
2.4	Forecast CLEC Percentage of Residential and Small Business Access Lines
2.5	Forecast CLEC Percentage of Other Non-Residential Access Lines
2.6	Cable Telephony Share of Residential Wireline Access Lines
2.7	Forecast Residential Broadband Connections, Percentage of Households
2.8	Forecast Total Broadband Connections, Standard and Very High-Speed
2.9	Forecast Total Broadband Connections by Access Technology
2.10	Comparison of 2003 and 2005 TFI Forecasts of Narrowband Access Lines by Carrier Type
2.11	Comparison of 2003 and 2005 TFI Forecasts of ILEC Narrowband Access Lines and Broadband Connections, Including Resale/ UNE
3.1	Forecast Broadband Households, Percentage of Households
3.2	Adoption of Various Consumer Communications Products and Services
3.3	Broadband Households in the United States and South Korea
3.4	Forecast of HDTV Households
3.5	Broadband Households by Nominal Data Rate, Percentage of Households
3.6	Trend in Residential Access Data Rates
3.7	Forecast Adoption of Standard and Very-High-Speed Broadband, Percentage of Households
3.8	TFI Forecast of U.S. Households using IP Video
3.9	TFI Forecast of U.S. Households Using High-Definition IP Video
3.10	Comparison of High Definition IP Video and 24 Mb/s Broadband Bandwidth Forecasts
3.11	Minimum Availability of Very High-Speed Broadband
4.1	PON Architecture
4.2	BPON Architecture
4.3	FTTC Architecture
4.4	FTTN Architecture
4.5	Worldwide Packets Active Ethernet System
4.6	Active Ethernet Implementation
4.7	Alternative Architecture Bandwidth Comparatives
4.8	Speed of Broadband Access--National Targets
5.1	U.S. Local Switching Technologies, 1950-2020
5.2	Generic Local Switch Architecture
5.3	Voice Versus Data Traffic
5.4	Substitution of Packet Switching for Circuit Switching for ILEC Voice Access Lines
5.5	Substitution of Packet Switching (ATM/IP) for Circuit Switching for ILEC Voice Access Lines (2003 Forecast)
5.6	Number of ILEC Narrowband Access Lines on Circuit and Packet Switching (Base Forecast)
5.7	Number of ILEC Narrowband Access Lines on Circuit and Packet Switching (Base Forecast)
5.8	Replacement of Successive Generations of Switching Equipment
5.9	Survivor Curves for Digital Circuit Switching--Base Forecast
5.10	Survivor Curves for Digital Circuit Switching--Late Scenario
6.1	Adoption of Optical Transport and Access Network Equipment
6.2	Combined Survivor Curves for DLC and T-Carrier Transport--Early Scenario
6.3	Combined Survivor Curves for DLC and T-Carrier Transport--Middle Scenario
6.4	Combined Survivor Curves for DLC and T-Carrier Transport--Late Scenario
6.5	Surviving Value and Depreciation Lives for ATM, DWDM, and SONET Transport Equipment
6.6	Life-Cycle for DSL Equipment Based on Adoption of 24 Mb/s Broadband and Distribution Fiber (Late Scenario)
6.7	Combined Survivor Curves for DSL Equipment
6.8	Price Trend for DSL Equipment
6.10	Composite Survivor Curves for Circuit Equipment Categories--NOT Accounting for Competitive Impacts
6.11	Composite Survivor Curves for Circuit Equipment Categories--Accounting for Competitive Impacts
7.1	Substitution of Fiber for Metallic Cable in the Feeder Plant--Trend (Not a Forecast)
7.2	Minimum Fiber Feeder Availability Requirements--Percentage of Access Lines
7.3	Substitution of Fiber Cable for Metallic Cable in the Feeder Plant: Access Lines Converted to Fiber Feeder
7.4	Relationship Between Fiber Feeder Minimum Availability and Metallic Conversion Scenarios
7.5	Feeder Access Lines by Serving Technology: Middle Scenario
7.6	Multiple Substitution Analysis of Feeder Access Lines by Serving Technology: Middle Scenario
7.7	Comparison of ARMIS Fiber Feeder Data and Corrected Data
7.8	Distribution Fiber Scenarios
7.9	Comparison of the Early Distribution Fiber Scenario and the Required Availability of Very-High-Speed Broadband
7.10	Comparison of the Middle Distribution Fiber Scenario and the Required Availability of Very-High-Speed Broadband
7.11	Comparison of the Late Distribution Fiber Scenario and the Required Availability of Very-High-Speed Broadband
7.12	Homes Passed by Distribution Fiber versus Homes Converted to Fiber from Metallic Cable
7.13	Access Lines Converted from Metallic Cable to Fiber as a Percentage of ILEC Access Passed by Distribution Fiber
7.14	Access Lines Converted from Metallic Cable to Fiber: Comparison of Distribution and Feeder Scenarios
7.15	Survivor Curves and ARL for Metallic Feeder Cable--Early Scenario
7.16	Survivor Curves and ARL for Metallic Feeder Cable--Middle Scenario
7.17	Survivor Curves and ARL for Metallic Feeder Cable--Late Scenario
7.18	Survivor Curves and ARL for Metallic Distribution Cable--Early Scenario
7.19	Survivor Curves and ARL for Metallic Distribution Cable--Middle Scenario
7.20	Survivor Curves and ARL for Metallic Distribution Cable--Late Scenario
8.1	Age-Survivor Curve for Fiber Optic Cable
8.2	Survivor Curve (Installed Base)
8.3	North American Data-Rate Projections
8.4	Substitution of Advanced Fiber for Standard Single-Mode Fiber Optic Cable?Based on Distribution Fiber Adoption Scenarios
8.5	Mortality and Technology Survivor Curves for Standard Single-Mode Fiber Optic Cable--Technology Substitution Based on Middle Scenario Distribution Fiber Adoption (Not Accounting for Competitive Impacts)
8.6	Combined Survivor Curves for Standard Single-Mode Fiber Optic Cable--Technology Substitution Based on Middle Scenario Distribution Fiber Adoption
8.7	Substitution of Advanced Fiber for Standard Single-Mode Fiber Optic Cable?Based on Interoffice and Feeder Fiber for Metallic Substitutions
8.8	Mortality and Technology Survivor Curves for Standard Single-Mode Fiber Optic Cable--Technology Substitution Based on Interoffice and Feeder Fiber-for-Metallic Substitutions (Not Accounting for Competitive Impacts)
8.9	Combined Survivor Curves for Standard Single-Mode Fiber Optic Cable--Technology Substitution Based on Interoffice and Feeder Fiber for Metallic Substitutions