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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.'"
So this means they'll be able to charge less for service, right?
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
Oh I don't know, back in the late 70's I was paying $2/min + operator's fee to call the UK from Oz, equivalent to about an hour's minimum wage per min. Now it's about $4/hr and min wage is ~$15/hr. By my reckoning that's a couple of orders of magnitude drop in prices over the last 35yrs.
And did you exchange a walk on part in the war for a lead role in a cage? - Pink Floyd.
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,
Then you need to practice your unit conversions, here's a trick I learned in engineering - put each conversion ratio in parentheses and make sure the numerator and denominator are equivalent. Then add as many ratios as necessary to convert all unwanted units into something relevant. This technique makes it possible to do complex unit conversions while guarding against careless mistakes. A quick double-check that each unwanted unit occurs exactly once in each a numerator and denominator so they can be canceled, and you're good to go.
Old price = $2/min * (1 man-hour/$2) = 1 man-hours/minute
New price = $4/hr * (1hr/60min) * (1 man-hour/$15) = 0.0044 man-hours/minute
Or 225 times cheaper for a minimum-wage worker, clearly more than 2 orders of magnitude.
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.