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CELT cover

Comparison of Economic Life Techniques
Stephen L. Barreca


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]

Who should read this report?  [back to top]

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]

3.1Pre-1980 EM Survivors
3.2EM Switching Observed Lives
3.3EM Switching -- Investment by Vintage
3.4EM Switching -- Projected Lives Based on Traditional Mortality Techniques
3.5EM Switching -- Projected Lives Using the Substitution Technique
3.6Electromechanical Obsolescence
3.7EM Switching -- Projected Lives Using the Combined Obsolescence Technique
3.8Electromechanical Switching
4.1IOF Underground Metallic Cable -- Observed Lives
4.2Pre-1987 IOF UGRM Survivors
4.3Reuse Potential of IOF UGRM Cable
4.4IOF Underground Metallic Cable -- Projected Lives Using the Traditional Mortality Techniques
4.5IOF Underground Metallic Cable
4.6IOF Underground Metallic Cables -- Projected Lives Using the Substitution Technique
4.7IOF Underground Metallic Cables -- Projected Lives Using the Combined Obsolescence Technique
4.8IOF Underground Metallic Cable (table)
5.1Pre-1990 ASPC Survivors
5.2ASPC Switching -- Observed Lives
5.3ASPC Switching -- Projected Lives Based on Traditional Mortality Technique
5.4Analog Stored Program Control Switching
5.5ASPC Switching -- Projected Lives Based on the Substitution Technique
5.6ASPC Switching -- Projected Lives Using the Combined Obsolescence Technique
5.7Analog Stored Program Control Switching
6.1Comparison of Remaining Life Results
A.1The Fisher-Pry Model
A.2Linearized Fisher-Pry Model
A.3Market Share of the Old Technology
A.4Projecting the Number of Units
A.5Fisher-Pry and Life Cycles
A.6Computing the Survivor Curve
A.7Estimating the Average Remaining Life from the Old Technology Market Share
B.1Typical Mortality Survivor Curve
B.2Retirement Rates Due to Traditional Mortality
B.3Typical Life Cycle Chart
B.4The Fisher-Pry Model
B.5Typical Obsolescence Chart
B.6Annual Loss Due to Obsolescence
B.7Combining Multiple Forces of Mortality
B.8Mortality Survivor Curve
B.9Life Cycle Resulting From Traditional Mortality Only
B.10Projected Substitution for LEC-A
B.11Obsolescence of IOF Copper
B.12Resulting Life Cycle
C.1Typical Interoffice Cable Route
C.2IOF 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

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