Obsolescence in Communication Property Today
Aug 20, 2018
With continued improvement in communication equipment and changes in demand for communication services, there continues to be increases in functional obsolescence in communication equipment. This is true for both wireline and wireless communication equipment. Changes in technology, services demanded, and operating costs are the major reasons for communication equipment to experience functional obsolescence.
Functional obsolescence is a form of depreciation in which the loss in value or usefulness of a property is caused by inefficiencies or inadequacies within the property itself when compared to more efficient and/or less costly replacement property that new technology has developed. Symptoms suggesting the presence of functional obsolescence are excess operating cost, excess construction costs (excess capital cost), over-capacity, inadequacy, lack of utility, or similar conditions.
In the case of wireline property, functional obsolescence may exist in the form of excess capacity, excess capital and/or operating cost. This is happening because of the demand for faster speed and capacity for broadband services. The shift in use of traditional telecom switches to soft switches and routers has also created excess capacity in older switches. Comparing fiber to copper cables indicates excess maintenance costs for operating copper cable networks. Further, as demand for faster broadband has developed, copper networks have seen continuing growth in excess capacity with communication companies relying more on fiber networks to meet demand.
The wireless equipment is also experiencing functional obsolescence the earlier wireless technologies as the available equipment has gone from 2G to 4G and with 5G now coming online. As customers upgrade from the older generation of wireless technology and equipment to take advantage of faster speed and new services the older generations are seeing excess capacity develop. One of the issues that keeps older generations of wireless equipment operating is as many, but not all customers move to the newer available technologies, several customers continue use of older technology equipment that can only use older (2 or 3G) equipment. Think of M2M (machine to machine) for example. Thus, there is excess capacity the older 2 or 3G wireless equipment as most customers move to the newer technologies.
It is important to ensure that one is addresses all forms of functional obsolescence in communications equipment created by customer demand for faster speed and new services provided by the continued improvements in the technology. CQA has years of consulting experience in appraisal and valuation services. Please contact Mike Wilson, VP of Sales and Consulting Services, for information.