Telephone Deregulation Continues

Fuld-modell-frankfurtThere is a package of five bills before the legislature in Colorado that would deregulate telephone service there. If they pass, and it looks likely that they will, Colorado will become the 21st state where telephone deregulation has occurred to some extent.

I have been part of that regulatory process for years and I have mixed feelings about. One of the primary bulwarks of telecom policy in most states has been to hold the cost of residential telephone service as low as possible to make landlines affordable. I can remember many rates cases in various states where requests for rate increases in residential phones were either denied or highly curtailed. And the result of this persistent regulation over the years has been that in many states the prices for residential rates has been held below costs.

When I say that, I am referring to fully allocated costs where all of the costs of the business are spread across all of the products being sold. Regulators had many reasons for keeping costs low. One was public policy and the belief that all houses should be able to afford landlines. And back at the time when 98%+ of homes had landlines that probably was good policy. But over the years there also has grown the feeling that the large telcos have milked the profits out of the copper network and that almost anything they charge for them is excess profits.

One thing that is for sure is that after deregulation that the price for residential phones rises. The most extreme example was in California where the rates went up over a few years by 260%. But that is partially due to the rates there being help extraordinarily low for many years compared to other states.

But the current more towards deregulation is not about charging more for phone service, although that is a natural consequence. Instead, the phone companies are trying to create the mindset that copper is obsolete and needs to be phased out of service.

Let’s face it, the copper networks are getting old. An AT&T spokesperson on Colorado has been quoted to say that landlines will be obsolete by 2020. Many of the copper networks still operating in big cities and older suburbs were built in the 1960s. And frankly the phone companies have cut back on maintenance of copper and the networks have deteriorated. Small town America understands this better than anybody since in many rural areas there are barely any technicians to be found to fix problems.

Replacing the copper is inevitable. The problem comes in that in many areas there are no alternatives. First is the issue of cost. In rural areas the only alternative to copper is wireless, and households would need to replace a $20 landline with one or more cell phone, which could easily cost $100 or even much more per month. And that is where cell phones work. No matter how pretty of a picture that AT&T and Verizon try to paint with their nationwide coverage maps, there are still plenty of places in the country where cell phone coverage is terrible. If you have even been in a town where you have to walk around outside to find that one magic spot where you can get a cell signal you will understand that cellular is not always an option. And you don’t have to go very far outside City limits in rural counties to find huge zones with no cellular coverage.

The Colorado bills don’t just deregulate the price of phone service. The bills go further and take away the complaint process for phone service away from the state Commission there. If a consumer wants to file a complaint they would have to go to the FCC. Another bill deregulates VoIP service, which is telephone service delivered over the Internet or over an IP connection on a cable network. When you see those kinds of provisions in laws you know they were written by the large phone companies who want a lot more than a plan to look at the end of copper.

Is it Possible to do a Valid Phone Survey?

Telephone surveys have always been a staple of doing research in the business and political arenas. Surveys have been given to random samples of households to find out how the public as a whole feels about various topics. And surveys have been effective. The whole point of a survey is to sample a relatively small number of people and have good faith that the results of the survey represent the opinions of the public as a whole.

But there has been such a large drop in the number of households with landlines that one has to ask if it is possible to any longer do a valid telephone survey. The percentage of households with landlines has declined greatly and nationwide it is estimated to now be below 60%. We recently heard of a community in Colorado that has less than 45% of households with landlines.

The whole point of doing a survey is so that you can rely on the results to tell you something meaningful about the whole population. And there are several aspects to conducting a survey that are mandatory if the results are to be believable. In order to be valid, a survey must be delivered randomly to a sufficient proportion of the universe being sampled.

And therein lies the problem. I think it’s a valid question to ask if households who still use landlines are representative of the universe of all households. I think there is a lot of evidence that they are not representative. Telecom carriers everywhere are reporting that households that drop landlines are younger, more tech savvy and more innovative than households that keep landlines.

And so, in statistical terms, one must ask the hard question if a survey given only to households with landlines is any longer representative of the whole population. And the answer might be sometimes, based upon what is being asked. But for most of the purposes I see surveys used for, my gut tells me that landline households are no longer the same as all households.

For example, say that you wanted to ask how many people in a City wanted to get a gigabit of bandwidth. If you survey households with landlines you are most likely mostly talking to older households and households with kids. You are probably not going to be talking to younger households and tech savvy households who have a lifestyle that eschews landlines. And I think you are going to get a skewed answer that you cannot believe. One would think that a larger percentage of the landline houses would not be interested in gigabit speeds while you didn’t talk to many of the households who would be interested. And so, when you summarize your survey results you are not going to have a believable estimate of the number of people who would be interested in the gigabit speeds – which was the whole point of doing the survey.

There might be a way around this, but it is hard to pull off. If you can find a way to randomly call households in the town that includes landline and cellphone households, then you are again sampling the real universe of households. But this is a problem for several reasons:

  • If you are already in business you are allowed to call any or all of your own customers. But as soon as you try to call in an area of people who are not your customers you must follow the Do Not Call rules, which says that it is illegal to call people who have registered to not get junk calls. You can obtain lists of such people, but it adds expense and cost to the survey.
  • Then you must have access to a database that has a telephone number for everybody, and these rarely exist. Maybe some local government or utility might have such a list, but they can’t share these lists with anybody else due to privacy issues.
  • Even if you have this kind of list it is against FCC rules to call cell phones to conduct a survey. The problem is that there are still plenty of customers on fixed-minute cellular plans and a lot of surveys require 20 minutes or more. If you are going to call cell phones you are strictly breaking the rules, so the first thing you should do is to tell cell phone users they can opt out of the call. But if enough cell phone callers refuse to take the survey, then you are back to having an invalid sample.
  • You can’t solicit cell phone households to give their phone numbers for purposes of conducting a survey. As soon as you do that the sample is not random and we are back to square one.

A non-statistician might think, “As long as the results are close, I am okay with the survey not being entirely valid”. And they would be wrong. If a survey isn’t done properly, then there is no validity to the results. You do not want to make any important business decision based upon an invalid assumption. There are enough ways to fail in business and you shouldn’t add the sin of relying on false assumptions to the list of reasons why your business plan didn’t succeed.

There are other ways to do surveys such as going door-to-door, but other kinds of surveys are usually costlier and they have their own potential pitfalls. We might be soon be approaching the day when surveys are going to disappear from our lexicon of useful business tools.