The Industry

Who Still Has Landlines?

I’m a regular reader of the Washington Post, having started to read it as a teenager. The newspaper has a great series of articles called the Department of Data, written by Andrew Van Dam. His articles look at questions asked by readers for which there are statistics available to answer the question. He recently answered the question of who still has landline telephones. The article is behind a paywall, but here is a link.

Van Dam found the answer in the National Health Interview Survey that is conducted by the National Center for Health Statistics. It may seem odd for this government survey to contain a few questions about telephones, but over the years, the survey has shown a correlation between having a landline and overall health. According to the survey, people who cut the cord and only use cell phones are more likely to engage in risky behavior. They are more likely to binge drink, more likely to smoke, and more likely to go without health insurance. The folks who give the survey don’t know why that is – it’s just a statistical trend that has held true for many years.

Here are some of the statistics about landline telephone service and cell phone usage from the latest NCHS:

  • 27% of homes still have a landline / 73% of homes only use cell phones.
  • 2% of homes have a landline and no cell phone.
  • Only 1% of homes have no landline or cell phone.
  • 34% of homeowners still have a landline. Only 15% of renters have a landline.
  • Landline usage is correlated with age. 88% of adults between 25-29 only use a cell phone. Only 47% of those over 65 only use a cell phone.
  • Interestingly, there is not much difference in cell phone usage based on level of education.
  • There is some correlation between household income and cell phone usage. 78% of homes that are below the poverty line only use cell phones while 72% of those making twice the rate of poverty or higher use only cell phones.
  • There is virtually no difference in the percentage of homes that use only cellphones between urban and rural areas.
  • There is a big geographic difference in households that only have cell phones. Nearly 80% of homes only use cell phones in Idaho, Oklahoma, Mississippi, Wyoming, and New Mexico. The states with the lowest percentage of homes that only use cell phones are New York, Maryland, Massachusetts, and New Jersey. The whole northeast has fewer homes that rely on only cell phones than the rest of the country.
  • There is no correlation between still having a landline and having a computer or tablet in the home.

Van Dam speculates that the northeast has the highest percentage of landlines because Verizon built FiOS fiber networks back before the giant drop in landline subscriptions. He thinks it’s likely that people who have used Verizon FiOS for a long time have never bothered to drop the landline service.

I always find it interesting when ISPs choose to offer broadband and no telephone service. It’s really easy these days to layer on VoIP service, and it’s an easy margin with little headaches. I think many ISPs will be surprised to find that over one-fourth of homes still are willing to pay for a landline.

The Industry

Landlines Still Not Dead

In 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.

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