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All-IP Network Produces $100B Real Estate Windfall
Hugh Pickens writes "Daniel Berniger writes that one of the unexpected consequences of AT&T's transition to HD voice and all-IP networks is that the footprint of required network equipment will shrink by as much as 90 percent, translating into a $100 billion windfall as the global telecom giant starts emptying buildings and selling off the resulting real estate surplus. Since IP connections utilize logical address assignments, a single fiber can support an almost arbitrary number of end-user connections — so half a rack of VoIP network equipment replaces a room full of Class 4 and Class 5 circuit switching equipment, and equipment sheds replace the contents of entire buildings. AT&T's portfolio goes back more than 100 years, even as commercial real estate appreciated five fold since the 1970s, so growth of telephone service during the 20th century leaves the company with 250 million sq ft of floor space real estate in prime locations across America. 'The scale of the real estate divestiture challenge may justify creating a separate business unit to deal with the all-IP network transition,' writes Berniger, who adds that ATT isn't the only one who will benefit. 'The transition to all-IP networks allows carriers to sell-off a vast majority of the 100,000 or so central offices (PDF) currently occupying prime real estate around the globe.'"
Somebody will benefit from it, but not the customers. We're not important enough to merit such consideration.
So this means they'll be able to charge less for service, right?
but the end consumer won't see crap out of it, including improved network performance, capability, or reduced costs...
Need I say more?
... the nsa, to put more snooping equipment in. Cheap too, that with the real estate bust and all that.
The summary sounds all rosey and it is just as simple as selling off unused office space. In order to sell something you need someone willing to buy it. It sounds like the office-space market is going to get flooded with office-space getting sold at liquidation prices in an already sucky economy. How many people are out of work and how many companies have folded? There's already lots of empty buildings. Oh, you now AT&T will unload even more office space? Yeah, this sounds great! Sigh.
They're reducing their costs, not their prices.
Prices will go down if there is competitive pressure. Which apparently, is largely absent from the US market.
Those who can make you believe absurdities can make you commit atrocities. - Voltaire
The Australian telcos, who are being converted to an IP backbone, found there were some difficulties. Because they must operate a wiretapping facility [citation needed] for their various police forces, they have to invent and build one for voice over IP. Being a new initiative, this is fraught with risk, unexpected costs and scalability issues.
This will be true of any telco in a legal regime where the government requires the telephone companies to provide the mechanics needed for spying on their customers.
--dave
davecb@spamcop.net
Many of those telco facilities will probably remain as data centers, not office space. They're already built out as data centers.
Regulated monopolies are generally allowed a fixed return on investment. For instance, all of that copper laid down in the twenties though the seventies is listed as an asset that the telcos get a few percent profit on each year. And that includes those buildings.
That means that AT&T will make a windfall of billions, but will also reduce their capitalization (and thus profits) going forward. They'd best invest wisely.
Lacking <sarcasm> tags,
Their land-line business is regulated at set rates of return on investment. Sell off the capital base and they'll be required to reduce their land-line rates proportionately.
Or at any rate, that's the theory. Actual results depend on public rate commissions. Wise citizens pay careful attention to them, and this is an election year.
Lacking <sarcasm> tags,
It seems to me that a half rack of equipment of gonna take a lot less employees on site to babysit than rooms of equipment. Sure some of those jobs will stick around with the new business that takes over, but that will seemingly be the huge cost reduction for the company.
So really, how much of that $100 billion will actually be reinvested for things like improving national infrastructure and providing better service to customers, or anything that isn't cutting bigger bonus checks to top execs?
Fine. It will be a Data Center glut.
For regular voice it's not really a problem, but for other things it can be, fortunately those are going away also.
The problem is digital voice. IP Voice service almost always has some compression and decompression involved which creates a delay between a word being spoken and being heard. This is why you get an echo instead of feedback when you have your buddy has his speakers up to high on a Skype call. Usually not much of an issue, but I have noticed an increase in trying to talk over the top of one another since voice has gone IP. Used to the near instantaneous transmission the older equipment had let you pick up on ques from the other side that allowed for more politeness.
This doesn't matter much to most people, but it's why NASA went with analog over fiber for the DVIS system (which I have a minor role in supporting at JSC) and why the VIS system we are slowly replacing it with also doesn't use "normal" compressed IP, we're going back to copper on VIS.
It's also going to have an affect on modems. I know most consumers don't use modems anymore and even most business uses have gone away, but there are still some uses here and there, credit card processing, backup connections etc.. The transition to IP for sound can be the work/not work on a less than stellar connection otherwise.
I personally think going to IP is great, but I felt the need to play devils advocate for just a moment.
The preceding post was not a Slashvertisement.
AT&T will lay off people, close buildings, and profit thanks to improvements in technology.
Having to work for a living is the root of all evil.
Voice is such a small amount of network traffic these days this will probably just make room for more datacom equipment without expanding. You may be able to consolidate a few, but footprint matters. Shutting down 90% of the COs out there would mean massive rerouting of all the fiber in the country and huge CO-to-home links necessitating FTTH with real optics rather than cheap PON stuff they use today. Not to mention less optimal routing increasing latency and severity when a CO loses power - this falls into the Very Bad Idea category.
The bandwidth of fiber optic is ridiculously larger than that of the same weight and diameter of a bundle of copper. So is the electrical cost of a long bundle of fiber, which does not waste anywhere near as much electricity and energy on simple conductive losses of telephone wire driving DC electricity across dozens or thousands of miles of electrical wiring in a single building. Unfortunately, we've turned right around and wasted the resources elsewhere. Providing network traffic to every single electronic device in our homes and offices, "paperless" offices with a dozen times as much useless and unpreserved priinted material going in the recycling bin every day, and the _amazing_ proliferation of electronic spam of every sort continue to overwhelm office resources. Let us also not forget all the glowing LED's and short lifecycle portable devices sitting on recharging stands all day: that represents a very real cost, even though it's coming out of our home and office budgets, not the telephone colmpany's budget.
The tradeoffs are also fascinating Take a very good look at the "fax" business, which remains active for legal documents and all sorts of office document, although every step of the system has been replaced by a superior transmission or reproduction.
TFA says $500bn, not $100bn! /Stefan
So... Colo glut?
Sorry if I've been living in a cave for the last few years (decades?) but is putting our voice communications over the same technological infrastructure as supports the Internet such a good idea?
I mean isn't having completely separate systems for certain things good? When we have a power outage, the toilets still flush and the (simple) telephones still work. When a water main breaks the elevators still run and... you get the point.
So what happens when a hacker brings down the critical routers supporting a major metropolitan area? Or everyone tries to simultaneously download a video the latest sex tape of Hillary Clinton with Newt Gingrich? Having regular phone services cut off (as well as emergency 911 services) would not be good.
I remember about 15 years ago taking a tour of the Verizon central office in Worcester, MA. One floor (I believe under ground) had the backup batteries (and enormous copper bus bars to carry the current), one floor was split into two rooms (one for a Nortel DMS switch, the other room for a Lucent 5ESS), and toward the top of the building, a complete floor of decommissioned electromechanical switching gear. You could smell the old cloth covered wiring and rack after rack of relays. The room, and all its long obsolete equipment, was in essence a testament to the comparative efficiency of the Lucent and Nortel digital switches downstairs.
Multiply this by the thousands of central offices that scattered the US (I remember estimates of 10,000 Class 5 offices at the time), and that makes for a lot of unused space.
The difference is that you couldn't sell just a floor of a telco central office - all you could do is leave it dark and unused. If VoIP makes whole buildings obsolete (and I don't doubt it - I've worked in the industry for three decades now, at Bell Labs, Lucent, and now Cisco, and I have seen first hand the changes in the technology), then the carriers will have a real estate issue to deal with.
I don't know whether unused buildings contribute to the carrier's rate base (i.e., investments and expenses they can use to calculate what they charge). I do know my wireline phone bill is much larger than it was 20 years ago, and I'll be darned if I can justify why.
A $100bn windfall in real estate is significantly out of line with their market cap - it would imply the stock is massively undervalued.
A number of posters have suggested this should translate into lower prices for service. Unfortunately, even if it were real (and it is not), this would be a *one-time* windfall and should have no effect on pricing going forward.
Telephone exchange buildings devote at least as much space to the huge lead-acid 48 volt storage batteries which power the system.
Rack after rack, floor to ceiling is stacked with these monsters. That is why when the electric power goes out at your house, the landline telephones will continue to work.
Are the all-IP telephone networks going to eliminate the batteries? If so, it will eliminate the reliability of the phone system. I've lived through
the aftermath of hurricanes where we were without power for days, yet the telephones kept working.
I am amazed at the mechanical and electrical complexity of the old phone systems.
How many relays and switches had to move for you to make a phone call from NY to LA with these mechanical switches. Technology and modern methods are much more technical and complicated but with that technology, it is out of site, out of mind I guess. Being done with software and packets, you don't "see it" so it looks less complicated.
Why only have a 'windfall' now? Electronic exchanges have been around since about 1970, making thousands of electro-mechanical switch buildings obsolete. The latest miniaturization step is just one in a long series.
Excuse me, but please get off my Pennisetum Clandestinum, eh!
... if we're really losing all the COs, is in emergency telephone service during extended power outages.
My Verizon FiOS land-line only works for a few hours after a power outage starts, because they provide only a small UPS to operate the network interface at my site. No more full-time talk battery, folks.
What about backup power? equipment sheds don't have the same type of backups that the big offices have. And it's a lot to send techs out to each equipment shed with portable generators and keep then fueled. Right now the cable co's some times have to do that and they can't cover the full system with what they have.
And with it will go jobs the economy slumps again and no one wants to pay for prime real estate, and to boot their phone system will be less reliable, more prone to attacks and hacking.
"If any question why we died, Tell them because our fathers lied."
those old industries were replaced by new ones. well, now, there are no new industries. and the social safety net, to keep people afloat between careers, is being destroyed by ideologues.
you can argue all you want about efficiency, but at some point, when you have 50% unemployment, and you just have masses of people wandering the streets with nothing to do and no opportunity to work, they either have to depend on their parents, or starve to death. in that case, efficiency is not 'better'. its a recipe for a violent, horrific, bloody revolution, brought about by mass starvation. see Russia, 1917
their bonuses for the current quarter, telling everyone they 'made 100 billion dollar profit' for ATT. then they quit ATT and move to some other 'finance' job where they pull similar tricks. now maybe ATT later goes bankrupt because what it had book as 100 billion in assets could never be sold for 100 billion, and one weekend everyone realizes this at once and there is a massive selloff and dis-investment. (hey, its the mortgage meltdown all over again).
then we get the ATT bailout, and a bunch of other bailouts for the commercial real estate investors, etc etc. yay capitalism. yay efficiency.
http://www.alpha.ca/web2//generators/alphagen
Anything is possible, it all comes down to cost.
"Well, good luck finding a judge that doesn't run a bestiality site."
When they sold the buildings for the real-estate cash, luckily no personnel occupied those buildings and the decommisioned network equipment didn't need operators.
Who wasn't expecting it? Reducing your infrastructure footprint is bullet item 1 on practically any presentation on "let's switch from big, stateful, slow circuit-switched stuff to small, stateless, fast packet-switched gear". Is there anyone who's done networking in the last decade that didn't know this? Didn't they get the memo?
Oh, right. AT&T. They don't care. They don't have to.
This isn't from AT&T, it's from an outside analyst making wild guessimates. There are enough little errors throughout to make me doubt their big numbers. For example, AT&T installed their 145th 4ESS switch in 1999. There were few (if any) remaining 4ESS switches in SBC at the time they took over AT&T. Yet the PDF states that there are 5000 such offices.
The other point is that as older equipment has been removed, newer transport and local access equipment has taken up a good fraction of that freed space. This equipment tends to have higher heat output which either requires lower equipment densities or increased cooling or both. Given the existing HVAC systems and the building designs, this almost always results in more spread out equipment than in the past. Then there's the space for all of the new fiber terminations.
since US Taxpayers subsidized large portions of this upgrade, right?
at&t Isn't AT&T it's a baby bell which adopted the name.
The large (Bell and other) telephone companies are not regulated on rate of return any more. They are on "price caps". Only the smallest carriers, the mom'n'pops and subsidy-dependent rural ones, are on rate of return. That's why the Bells have laid off so many people and stopped investing - they are milking their old plant for all it's worth.
The huge savings in telephone company real estate happened over 20 years ago. Their big buildings were built for electromechanical switching systems, mostly installed between 1920 and 1970. The digital switches mostly installed in the 1980s were a fraction of the size, leaving lots of empty space in the big buildings. Some space has already been repurposed. And some is available, but the Bells don't want to give it up because it would make competition easier.
Most of the real estate still used by telco gear is for line drivers, the stuff needed to run analog phones. Whether these are fed by VoIP or TDM doesn't matter; 90 volt power ring and 48 volt battery take space. They also take power, but home-based analog terminal adapters (local battery) use even more, so centralized power (common battery) is a net savings.
Berninger is simply repeating Cisco memes, that somehow the magic pixie dust of IP makes everything wonderfuler. It's bullshit, but somebody has to call them on it.
I thought AT&T still used switchboard operators or is that just for the iPhone?
Is the number of end-user connections that fiber can carry "almost arbitrary" as in one less than an arbitrary number, or as in only being slightly determined by the actual capacity of the fiber?
Right. Mod parent up. The low point in telco CO space needs came after 5ESS replaced #5 crossbar.
Telephony systems today have more than switchgear. Many of the newer servers require server farms. You probably get a hosting and mail account with your DSL line. If a telco offers video, there's probably local caching. Telcos are now in the colocation business - Akamai often has caching servers in a central office. Netflix (which is 22% of Internet traffic and climbing) has caching servers, and the telco itself will have them as well.
If what you were saying was correct we should get rid of concrete mixers and pumps and have slews of people mix the concrete and carry it in buckets to where it needs to be poured.
Suppose you weren't a Slashdot-posting nerd. Imagine facebook is difficult for you, because it has text. You can't quite read "The Cat and the Hat" without help, but you're an adult and you'll make any excuse to hide your embarassing illiteracy. Your math skills include counting to 100 and adding single-digit positive numbers.
You'd like those jobs. Better yet, the crazy-high expense would knock the rich down a few levels, changing demand (and thus supply) of various things to your benefit. You could live mostly as well as pretty much everybody else. You'd feel better about yourself, attract better women, etc. Live would be pretty sweet, at least regarding jealosy and feelings of unfairness.
There are more people like the above than most of us Slashdot people realize. It's uncomfortably close to being the norm.
First, 76 hours was difficult. You had no spare time, so people hated the situation. 40 hours has no such problem for most people. Yeah we bitch about it, and I hate it too, but 40 hours really isn't difficult. You have time to sleep, eat, shower, shop, and even post on Slashdot.
Second, England had a massive technology and capital advantage. Currently the Western world has merely a big advantage, and it's erroding quickly. You can slack off when you're so far ahead that nobody can touch you. Today if we slack off, we end up no better than some random crummy place like Argentina, Egypt, Nigeria, Thailand, Indonesia, Colombia, Philippeans...
When we have a power outage, the toilets still flush
Power or not, this hasn't been possible for many years in the USA. Modern toilets have a button that fires about a cup of high-velocity water. This isn't enough to flush, but it's enough to create a mist of microscopic poo particles. (air drafts will carry a small portion of this toward your toothbrush)
To flush, use the tub to fill a 5-gallon bucket. Pour the water into the toilet. This is how we save water.
I could go for an electric toilet. Something like a garbage disposal (as seen on kitchen sinks) could work.
100 billion. The flood of commercial real estate could even go so far as sink the world deeper into the current depression.... ouch!
putting the 'B' in LGBTQ+
It doesn't have to. It's simple economics. Like what you do when you balance your checkbook. See, ATT creates the jobs which help drive tax revenue. So to increase revenue you have to increase subsidies while reducing taxes. That way they can pay more taxes on higher profits while laying people off and flooding market with commercial real estate, increasing the need for bank bailouts. It's simple common sense really....... oh, wait a minute..... :)
putting the 'B' in LGBTQ+
Will I still be able to use my dial up connection over the new VOIP backbone?
Also, does this mean that single packet, 140 character messages, will now be much cheaper than the mulit-Kbps VOIP calls?
- Or, will it cost > ~10 grand per call now?
Rent it. Use it for datacenters. Other stuff. Land should only be sold at the apex of really big bubbles - and bought back later in greater quantities, improved, and at discount.
Only Dump the Risky Stuff. Places where property risk is certain to increase catastrophically. Bad locations. But that also throws out the babies with all the bathwater.
Use the money or proceeds to return all that was was hocked from pensions, salaries, health insurances and working-career plans? Naaaahhhh!, right?
Natural gas generators. They need routine maintenance only once per year, and the local utility provides an unlimited supply of fuel. What's more, in catastrophic situations (eg. major eaarthquakes), they can be powered from portable propane tanks with the help of a fairly simple valve that dilutes propane with air to approximate the combustion properties of natural gas.
In (rurual) areas where no natural gas utiility exists, this is also the solution. There are always propane providers who will drop off a huge tank, and stop by on a bi-weekly basis to check on and refill the tank. I'm sure the phone companies will be big enough customers to get damn good pricing from providers of this service, maybe more frequent service, and contractual obligations even after natural disasters.
Slashdot gets worse every day... Pipedot: News for nerds, without the corporate slant
Ironically, the same packet-switch revolution that made all the real estate available to be retasked, has also served to scuttle the long term value of that real estate.
So what would that supposedly prime real estate be used for?
Housing office folk (now office workers can telecommute thanks to packet switched communications like the internet)
Retail brick and mortar (now people can buy on-line thanks to packet switched communciations like the internet)
Housing people (now that offices don't need prime real estate, nor retail brick and mortar isn't there, what's the attraction?, so it is really prime anymore).
Perhaps, the commercial real estate folks try to fill that space with bars, restaurants and clubs, but these types of businesses only want ground level space, so that high rise is uneconomical to build anymore w/o the upstairs tenants. So much for it necessarily being prime real estate anymore. About the only thing left that make it "prime" would be great access to mass transit. But w/o the office workers, will that be still true over time?
Obviously, this won't happen overnight, but I think many commercial real estate folks are in about as much denial as the xburb and suburb housing real estate folks were about 5 years ago. The packet switched revolution has changed the world and the buggy whip factories aren't needed anymore, but the people selling hay to the horses don't think that it matters to them. They can sell hay to other industries, right?
I do own a $60K car - A white BMW Z4 actually, and I'm an independent contractor! And you're right, because if I sold it i would just buy something else for $60K so that I could stay an independent contractor! Reinvest!
Many of those telco facilities will probably remain as data centers, not office space.
Alternative use: monitoring, intercepting and logging communications?
Questions raise, answers kill. Raise questions to stay alive.
hi hank hill just don't let joe jack short fill then tanks.
When I was in the army in Hungary (mandatory military service) sometimes we were ordered to go out to the soccer field and cut the grass with scissors.
I mean you either packetice your voice into fairly large (i.e. 20ms) chunks of data and have horrible latency which would create problems for many applications, or you pack every single sample into a packet an waste a _lot_ of bandwidth.
It only makes sense for low quality voice only telephone networks... however I don't need a phone company for that, I only need IP.
So essentially what AT&T is doing here is to throw away the only advantage they have over their competitors. If there was competiion, they probably wouldn't do that. BTW I have chosen my phone company partly because they offer real ISDN.
Out with the old hard-to-sniff network..
Roll in the easy-to-sniff network.
Profit!!! Oh, wait.....
Unfortunately the removal of all of the equipment from the Grass Valley, CA central office resulted in a blackout of the most highly populated portion of the county a month ago when the fiber line to Sacramento was cut by a retarded repair crew. No local switching means no 911, no local cell. Complete blackout except for hams.
....Still on Centrex, and paying AT&T boo-koo bucks every month for the privilege. :(
Regards;
Ridiculously easy: Check-out what's sitting outside the equipment hut of pretty-much every cellular tower in North America.
Regards;
I'm quite confused by much of this discussion.
1. AT&T doesn't provide local service. Operations such as the Verizon non-wireless telco subsidiaries do. In a big city, I would expect most of the telephone equipment buildings to belong to such telcos.
2. Long-distance service is no longer rate-regulated in the US.
Also, I am familiar with some of the buildings in New York City that were built in the 1960s and 1970s. Some are nearly windowless 30-storey buildings, with access to most space only by elevator, in less-than-prime locations, nonetheless subject to NY City and State taxation, high labor costs, and all the geographic risk of being in one of the top targets for terrorist attack. How attractive would these be as data centers?
It's hard to say exactly what buildings belong to AT&T these days since the little metal bits of the old AT&T have been poolinmg back together T1000 style. LD isn't rate regulated, but that has nothing to do with real estate no longer being needed for old bulky network hardware.
As for NYC datacenters, I wouldn't have thought they would be all that popular, and yet they exist now so there must be some demand. In other cases, rebuilding or extensive refitting might be necessary.
this will be sold off for little to nothing to insiders who can capitalize on it.
I question ATT's ability to close COs and eliminate bulky class 4 and 5 switches anytime soon. Most SMB IP services aren't delivered natively, but rather via AT&T's legacy TDM network, like 6MB Ethernet on 4x T1 circuits. Lots of wire is needed to backhaul these services (8 pairs for the above), and moving circuit cards closer to the customer seems like it would be a step in the wrong direction. There will be a need for DS1-based network support until these customers in particular can be moved to Ethernet via fiber, or some other modern delivery platform.