Publications Overview | Telecom Reports | Technology Forecasting Guides | Futures' Features | Future Impacts | White Papers, Articles, & Complimentary Reports  | Communications Reference Book | Archive [ordering online? -- please see our return/refund policy] Comparison of Economic Life Techniques Stephen L. Barreca Description Key findings Who should read in this report? Table of contents Exhibits Pricing/Ordering information Description  [back to top] "This report demonstrates, through actual case studies, that traditional mortality analysis is not an adequate predictor of the end of the life cycle when technological obsolescence, not physical life limitations, is the driving force." Tony Flesch, GTE Operations Major technological, regulatory, and market changes are reshaping many industries and having profound impacts on the useful lives of the tangible personal property supporting most businesses. It is crucial, therefore, that estimates of the useful lives of property accurately reflect the realities of today's rapid pace of change. Traditional approaches to estimating the useful lives of mass property have proven ineffective. Recently, new approaches have been developed and are in use; because of their relative newness, however, empirical evidence of their effectiveness is scarce. The purpose of this study is to assess and document the effectiveness of three commonly used life analysis techniques -- traditional mortality, substitution, and combined obsolescence. The studies use actual mortality experience compiled from over 74 state jurisdictions, involving hundreds of thousands of units of property. Additionally, actual technological performance data, collected from the entire U.S. telecommunications industry are used to document the pace of technological change. Key Findings From This Latest TFI Report  [back to top] The traditional actuarial approach to assessing the economic lives of property and products does not adequately account for the impact of functional obsolescence. Using such approaches when technological or market driven changes are apparent may grossly overstate the remaining economic lives -- the average observed error was 173%. Physical retirement patterns do not provide valid indications of the economic lives when obsolescence is present. Who should read this report?  [back to top] Depreciation Analysts Regulators Valuation Specialists Property Appraisers Business Case Analysts Table of Contents  [back to top] Chapter One: History Chapter Two: Introduction and Study Methodology Data Study Methodology Traditional Mortality Approach Substitution Approach The Combined Obsolescence Approach Development of the Observed Lives Realized Life Remaining Life Chapter Three: Case Study -- Electromechanical Switching (EM) EM Observed Lives EM Traditional Mortality Assessment EM Technological Obsolescence Assessment EM Combined Impact of Technology and Traditional Mortality Observations from the EM Case Study Chapter Four: Case Study -- IOF Underground Metallic Cable IOF UGRM Observed Lives IOF UGRM Traditional Mortality Assessment IOF Metallic Underground Cable Technological Obsolescence IOF UGRM Combined Impact of Technology Obsolescence and Traditional Mortality Observations from the IOF UGRM Case Study Chapter Five: Case Study -- Analog Stored Program Control Switching Equipment ASPC Observed Lives ASPC Traditional Mortality Assessment ASPC Technological Obsolescence Assessment ASPC Combined Impact of Technology Obsolescence and Traditional Mortality Observations from the ASPC Case Study Chapter Six: Conclusions and Recommendations Appendices A. Substitution Analysis and the Fisher-Pry Model Forecasting with Fisher-Pry Extensions of Fisher-Pry Projecting the Market Share of the Old Technology Projecting the Number of Units Relationship to Product Life Cycles Forecasting Depreciation Lives Company Forecasts B. Technological Obsolescence: Assessing the Loss in Value on Utility Property Background Assessing Traditional Forces of Mortality Assessing Technological Obsolescence Functional Obsolescence Substitution Analysis Combining Multiple Forces of Mortality Case Study Traditional Mortality Technological Obsolescence Resulting Economic Life Conclusion C. Analysis of the Reuse Potential of IOF Metallic Cable Interoffice Reuse Conditions for the Reuse of IOF Metallic Cables Best Case Estimate of IOF Reuse Opportunities List of Exhibits  [back to top] 3.1 Pre-1980 EM Survivors 3.2 EM Switching Observed Lives 3.3 EM Switching -- Investment by Vintage 3.4 EM Switching -- Projected Lives Based on Traditional Mortality Techniques 3.5 EM Switching -- Projected Lives Using the Substitution Technique 3.6 Electromechanical Obsolescence 3.7 EM Switching -- Projected Lives Using the Combined Obsolescence Technique 3.8 Electromechanical Switching 4.1 IOF Underground Metallic Cable -- Observed Lives 4.2 Pre-1987 IOF UGRM Survivors 4.3 Reuse Potential of IOF UGRM Cable 4.4 IOF Underground Metallic Cable -- Projected Lives Using the Traditional Mortality Techniques 4.5 IOF Underground Metallic Cable 4.6 IOF Underground Metallic Cables -- Projected Lives Using the Substitution Technique 4.7 IOF Underground Metallic Cables -- Projected Lives Using the Combined Obsolescence Technique 4.8 IOF Underground Metallic Cable (table) 5.1 Pre-1990 ASPC Survivors 5.2 ASPC Switching -- Observed Lives 5.3 ASPC Switching -- Projected Lives Based on Traditional Mortality Technique 5.4 Analog Stored Program Control Switching 5.5 ASPC Switching -- Projected Lives Based on the Substitution Technique 5.6 ASPC Switching -- Projected Lives Using the Combined Obsolescence Technique 5.7 Analog Stored Program Control Switching 6.1 Comparison of Remaining Life Results A.1 The Fisher-Pry Model A.2 Linearized Fisher-Pry Model A.3 Market Share of the Old Technology A.4 Projecting the Number of Units A.5 Fisher-Pry and Life Cycles A.6 Computing the Survivor Curve A.7 Estimating the Average Remaining Life from the Old Technology Market Share B.1 Typical Mortality Survivor Curve B.2 Retirement Rates Due to Traditional Mortality B.3 Typical Life Cycle Chart B.4 The Fisher-Pry Model B.5 Typical Obsolescence Chart B.6 Annual Loss Due to Obsolescence B.7 Combining Multiple Forces of Mortality B.8 Mortality Survivor Curve B.9 Life Cycle Resulting From Traditional Mortality Only B.10 Projected Substitution for LEC-A B.11 Obsolescence of IOF Copper B.12 Resulting Life Cycle C.1 Typical Interoffice Cable Route C.2 IOF Copper Investment Not Reusable Pricing Information  [back to top] May 1999, 74 pages , Sponsored by the TTFG, ISBN 1-884154-12-3 US $45 Hard Copy Mail Delivery US $45 Hard Copy Mail Delivery Outside US, Canada Texas residents add 7.25% (Austin, Texas 8.25%) sales tax. 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