Landlines Still Not Dead

Black phoneIn December the latest survey came out from the Center for Disease Control that tracks landline telephone penetration rates to a greater degree than any other survey I have seen. The CDC put this question in their survey a number of years ago to track how many people had easy access to 911 and health care and has kept the question in their large annual survey ever since.

This year the CDC survey showed that for the first time the number of households with landlines has fallen below 50%. This survey and other industry reports of penetration rates prompted FCC Commissioner Mike O‘Reilly to suggest that voice traffic ought to no longer be considered a dominant service and that regulation on the service should be more relaxed.

The survey is not a exact measure of landline penetration, but even if it is off a little bit it’s certain that landlines will be under a 50% penetration sometime in 2016. I know from experience in working with rural companies that where cellular coverage is poor that a much higher than average percentage of rural homes still have landlines – and this is something that a nationwide survey could miss.

The FCC also recently released some data that talks about the technology used for landlines. The data they collect indicates that the majority of landlines are now VoIP and are delivered over broadband systems like cable networks or fiber networks. The FCC estimates that only 15% to 20% of landlines are still delivered over copper using TDM technology.

As would be expected, the survey shows that landline usage varies by region around the country. There is a higher voice penetration in rural markets than in urban markets. There are more landlines in homes without children and it seems that homes with children are more likely to opt out in favor of cellphones. Landline usage continues to steadily drop. In 2012 around 62% of homes still had a landline and in the three years since that number has dropped to 50%.

There are several ways to interpret these statistics. Many in the industry wrote off the voice business years ago as obsolete. Some new ISPs such as Google have opted to not even offer voice. They see the steadily sinking numbers as evidence that voice is a dead product.

But I look at these statistics in a very different way. Obviously depending upon the market there is still a significant opportunity to gain revenues and margins if voice is part of your product mix. I ask the question – what other high margin product can a carrier offer that might sell to as many as 50% of their customers? Even should that percentage only be 30%, what other products are on the market that can do that well? The answer, at least for now, is none. Lots of ISPs are looking at all sorts of other new products like home security, energy management, home automation, etc. But I have never seen anybody, including the big companies like Comcast, think that any of these products are going to have penetration rates near as as high as where voice is today, or even where voice might be five years from now.

Because voice is such a mature product there are a number of ways to control costs when offering voice in order to make sure that there are good margins. And any decent network can now support resold high quality voice products from reliable vendors, which can provide a guaranteed margin. But if you have enough potential customers, it’s going to be cheaper still to do this with your own voice switch.

So yes, voice is no longer a dominant product. The FCC Commissioner got that right and it’s time to get rid of the remaining regulations that can make it annoying to sell voice. Companies still need to file tariffs and undertake all sorts of regulatory work for the voice product that are no longer justified.

But while no longer dominant, voice is a long way from dead. There are still no other products on the horizon that can get the kinds of penetration rates that ISPs still see with voice. And the margins on voice have improved over the last decade, as technology has improved, to the point where voice is a guaranteed high margin product.

I know I make this speech about once a year and I probably can go back and find older blogs where I said basically the same thing. But my conclusion is that voice is far from dead, and while it continues to decline it can still offer significant margins to an ISP that offers it.