Major Telecom Carriers Opt For Legacy Services Shutdown

Discontinuation of legacy voice services and Ethernet services has become a growing trend in the wireline segment of the telecommunication industry. The decision to terminate the services stems from lack of demand. Customers are migrating from these older services toward newer options and latest technologies. Given the low number of subscribers and high costs of support for these services, the shutdown of these services seems appropriate.

Meanwhile, telecom service providers are moving toward IP-based networks as an increasing number of enterprise customers are opting for IP-enabled cloud services.

Accordingly, to shut down any of its services, the respective company/carrier has to seek permission from the U.S. telecom regulator, Federal Communications Commission (FCC), clearly stating the reasons behind the closure of the service.

Let’s have a look at the service discontinuations by different service providers.

U.S. telecom behemoth, Verizon Communications Inc. (NYSE:VZ) is reportedly seeking permission fromthe FCC to discontinue its four-legacy interstate DS0 services in multiple New York wire centers. These four legacy interstate special access services include Voice Grade Service, WATS Access Line Service, Digital Data Service (DDS) and DIGIPATH Digital Service II.

On or after Dec 15, 2017, subject to FCC approval, Verizon will stop accepting orders from new customers for these services. Existing subscribers will no longer be able to purchase additional circuits for these services on or after Jul 1, 2018. The services are expected to get discontinued on or after Sep 2, 2019 in specified New York wiring centers.

The company claims that these four legacy services have become outdated legacy voice grade and data transmission services, which are no more preferred by bunch consumers.

As an alternative product, Verizon is planning to offer fiber-based voice services, Fios Internet, Switched Ethernet Service, Private Internet Protocol Service, DS1 services, machine-to-machine services and LTE.

Another U.S. telecom behemoth AT&T Inc. (NYSE:T) has also reportedly appealed to FCC to shut down its legacy Ethernet services - GigaMAN and DecaMAN, citing weak interest and the migration of customers to its newer dedicated service lines.

AT&T will discontinue offering GigaMAN and DecaMAN services in 11 states, including Arkansas, California, Illinois, Indiana, Kansas, Michigan, Missouri, Ohio, Oklahoma, Texas and Wisconsin. Beginning on or after Sep 30, 2017, the company will no longer offer these services to both new customers as well as existing customers. The termination of the services is currently planned for Sep 30, 2022.

GigaMAN and DecaMAN is expected to be replaced with AT&T Dedicated Ethernet (ADE) services, which include new protocols provisioned over fiber facilities.

Notably, during the second quarter of 2017, the service provider continued to see challenges in the business segment due to wireline pressure from legacy services and equipment sales. Business Solutions segment revenues were $17.1 billion, down 2.7% year over year due to continued declines in legacy services and fewer wireless equipment upgrades, partially offset by growth in strategic business.

As for AT&T, the telco has earlier requested the FCC for permission to discontinue a series of legacy services including collect calling, person-to-person calling, bill to third party, Busy Line Verification, Busy Line Interruption and International Directory Assistance in Jun 2016.

In Dec 2016, AT&T has sought permission from FCC to shut down 13 legacy TDM (Time-division multiplexing) services of its wholly owned subsidiary, Southwestern Bell Telephone Company. Southwestern Bell Telephone Company operates in Arkansas, Kansas, Missouri, Oklahoma, Texas and parts of Illinois.

Similar Service Termination Issues

In January 2017, telecom service provider Cincinnati Bell Inc. (NYSE:CBB) unveiled its plans to discontinue offering Local Area Service (LAS) in the Butler, Falmouth, Glencoe, Warsaw and Williamstown exchanges within the Kentucky portion of the telco’s operating area.

In November 2016, telecommunications and data service firm, Windstream Holdings Inc. (NASDAQ:WIN) announced plans to discontinue the DSL service it offers to SMBs (small and medium-sized business) and residential customers in CLEC (competitive local exchange carrier) territories across 25 states. Currently, 300 customers avail the service.

In June 2016, Level 3 Communications Inc. (NYSE:T) had sought permission from the U.S. telecom regulator Federal Communications Commission (FCC) to discontinue its legacy voice services based on outdated TDM (time division multiplexing) technology. The service is expected to shut down effective Aug 25, 2016 subject to the FCC’s approval. All affected users will be shifted to high-speed IP-based network before the termination of the legacy voice system.

All the above-mentioned stocks currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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