Tag Archives: landlines

The Resurgence of Voice

One of the most interesting outcomes of the COVID-19 crisis has been a huge resurgence of telephone calls. While broadband usage is up 40% or more in some markets, the volumes of traditional voice calls have skyrocketed.

Verizon says it’s now seeing an average of 800 million calls per day, which is double the number of calls made on the last Mother’s Day. Verizon also says the average length of calls has increased by one-third over recent averages. AT&T is seeing similarly increased volumes of cellular calls which are up 35%. They have also seen the volume of WiFi calls made using home broadband on cellphones double in recent weeks. The carriers said they are handling the volumes of calls well and have only had to make a few network adjustments. I’m quoting these statistics from Cecelia Kang in the New York Times, but I’ve been hearing a few similar stories from my smaller clients as well.

Voice has been on a steady decline for years, particularly with young people who communicate by texting or by the use of apps like WhatsApp. There are plenty of kids who will tell you they rarely use their phone to initiate phone calls. There was a time when my daughter was a teenager that it seemed like torture to expect her to talk on the phone.

But the COVID-19 crisis has turned the way we communicate on its ear. People need to call a lot more as part of working from home. Conversations that were done by walking down the hall now need to be done phone or computer.

I’ve been on a lot of computer meetings and calls in the last few weeks. I happen to have decent broadband and the quality of Zoom or GoToMeeting works great at my end, but I’ve connected to a lot of people who are struggling with poor quality broadband. A lot of people are connecting into computer meetings by phone out of necessity. The carriers report that the biggest surge in voice traffic is now in the daytime, which has historically been the time when phone traffic from residential neighborhoods was at its lowest. Call volumes now seem to have surged because of remote working.

A lot of the surge of voice traffic likely comes from people reaching out to friends and relatives they can no longer visit. I’ve seen a big increase in solo walkers in my neighborhood who are getting out of the house by taking a walk. The big majority of walkers are now talking as they walk – something that used to be fairly rare.

Most people are surprised to hear that over 40% of homes still have a traditional landline. Many households have ditched landlines completely for cellphones over the last decade. A number of homes with landlines have no choice because they live in areas with poor or no cellular coverage. These households are worried every time they hear something bad about their carrier, like with the recently announced Frontier bankruptcy. While many homes are struggling with poor broadband connections when being forced to stay home, there are millions of homes with no broadband and for whom the traditional landline is their only connection to the world. Many of these people have commuted to places where cellphones work and where the office has broadband, and being stuck at home with only a landline is a throwback to the days before dial-up.

It’s almost certain that voice volumes won’t stay this high after the end of the crisis. However, voice calling probably also won’t revert quickly to old volumes. I think there are likely to be a lot of people who will continue to work from home. I’ve been hearing from folks who say they’ve never been so productive before and will continue to work at home more when the crisis is over. I know that’s what drove me to work from home years ago.

We’ll probably adopt new habits. Young people who are calling and talking to family now might continue to do so when the crisis is over. People who have reconnected with old friends or began talking to existing friends daily by phone might continue to do so. This will all be made easier if the FCC is successful in finally tamping down the volume of nuisance calls we all get.

For the most part, this is a temporary situation, a throwback to the old days when the family phone was in use for most of each evening. It’s interesting to those of us who grew up in the voice business to see this resurgence.

Remember the Dumb Pipe?

I recently read an article that warned that the big ISPS need to embrace artificial intelligence, software defined networks and cloud infrastructure if they don’t want to become a ‘dumb pipe’ provider. It reminded me that the small ISP industry heard this same warning a decade ago. Small telcos and cable companies were all warned by numerous industry experts that they were fated to just become dumb pipes.

After a couple of years the dumb pipe phrase passed out of our conversations, but the issues that led to that warning were all still in play. Even a decade ago we knew that services other than broadband had a dim long-term future.

A decade ago we saw landline penetrations dip below 90% from a high of around 98%. There were dire warnings everywhere that voice would soon be dead and that voice margins would evaporate. Since then we’ve seen a steady market decline of about 5% of total market share annually, but that means that even after a decade that landlines still have a nationwide penetration rate of about 40%. The decline hasn’t been spread evenly and I have clients with voice penetration rates ranging between 20% and 55%.

We also knew a decade ago that cable TV was going to be in trouble. Netflix had just gone online with pay-per-view movies in 2007, but nobody understood then how powerful online video would become. The real concern then was that small video providers were already seeing annual programming rate increases that neared double-digits and everybody feared that the public would not tolerate large annual rate increases forever. For most small providers this was the first time they had ever had to annually raise rates for a product and nobody was comfortable. But the lure of programming is strong, and even after a decade of rate increases that have easily doubled cable TV prices the national penetration rate is around 68% for traditional cable TV – not drastically below the 75% penetration of a decade ago. It turns out that the public still likes the programming more than they hate the rate increases.

The real fear of becoming a dumb pipe a decade ago was that small ISPs would have to survive on nothing but broadband revenues. A decade ago small ISPs had broadband penetration rates in the 40% to 50% range and when they did the math they didn’t foresee that as enough revenue to replace the shrinking landline and video revenues. Many small telcos were so sure about the downfall of the small ISP industry that of them sold their businesses, fearing they’d never see a higher valuation.

However, since then we’ve seen broadband penetration rates continue to grow and roughly 84% of homes nationwide now pay for a broadband connection. Rising broadband penetration rates settled the fears of many small ISPs who are still in business.

Interestingly, many small ISPs have not raised broadband rates since a decade ago. It’s been hard to justify raising rates when the big ISPs also didn’t raise rates. Urban broadband that was overpriced a decade ago looks like more of a bargain after a decade of steady rates.

The good news for small ISPs is that the big ISPs are now poised to significantly raise broadband rates. In November we just saw Charter raise the broadband price for bundled customers by $5 per month – an increase that is unprecedented in the industry. Wall street analysts are telling the big cable companies that the market can bear broadband rates as high as $90, and they seem to be listening. As the big ISPs raise broadband rates, small ISPs will be able to ride the coattails and edge rates higher – knowing that for them that rate increases will go straight to the bottom line.

I don’t see any small ISPs who are worried about becoming the dumb pipe – because most of them are already there. If they still offer cable TV, they do so for customer convenience because the product has no margin. Small ISPs continue to lose landline customers, but they now understand that they can survive on broadband and related products like managed WiFi.

The main issue facing small ISPs these days is economy of scale. It’s clear that when broadband represents most of the margin of an ISP that profits come by controlling costs. The best way to control costs is not by tightening the belt, but by gaining customers to better spread existing costs. I see many small ISPs doing the math and aggressively pursuing new broadband customers. Far from fearing being a dumb pope provider, I see small ISPs enthusiastically embracing that role and growing their customers and their margins.