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All this would not matter much, were it not for the fact that many
businesses depend on landlines. First to suffer are telemarketers,
though they cannot expect much sympathy. Mobile numbers are
harder to get hold of, and in most cases it is also against the law
for telemarketers to call them (although many still do), since
mobile users in America are charged for receiving calls as well as
making them.
The growing ranks of people who only use mobiles are also causing
trouble for polling firms. Most pollsters ignored them until early
last year. But then the Pew Research Centre for the People and the
Press, an outfit that studies public opinion, demonstrated that by
shunning “cellphone- onlys” (CPOs), pollsters would understate
Barack Obama’s margin over John McCain in the presidential
election by two to three percentage points.
CPOs are twice as expensive to reach, not least because outfits
like Pew offer payments to those surveyed by mobile phone to compensate for the associated call charges.
Worse, pollsters do not know much about them. They are typically in their early 30s, earn less than
$50,000 annually, are unmarried and move more often than the norm. But even controlling for these
factors, they still had distinctive voting preferences, says Brian Schaffner, a professor at the University of
Massachusetts Amherst. According to his calculations, 49% of landline respondents leant towards Mr
Obama in June 2008, but the figure was 65% among CPOs. Perhaps, he speculates, CPOs are “more
willing to venture into something new”.
And then there are the telecoms operators themselves. Surprisingly, the industry’s heavyweights do not
seem to be too worried about losing landlines, whether to mobile operators or cable companies, which
now have 20% of the landline market. Their spokesmen argue that they have seen the trend coming and
have invested in new businesses. Verizon, for instance, serves nearly 20m landline customers in America’s
north-east, but is also the country’s biggest mobile operator with 87.7m subscribers and is investing
billions in a new fibre-optic network which reaches 2.5m homes. Verizon has sold bits of its landline
businesses in three states and is negotiating to do the same elsewhere.
Nonetheless Verizon and AT&T, its main competitor, are still mostly “wireline”, says Craig Moffett, an
analyst with Bernstein Research. According to his calculations, both firms’ landline businesses generate
more than 50% of revenues, and an even higher share of costs. The two firms and Qwest, America’s
third-biggest landline operator, have already shed thousands of jobs and announced further lay-offs to cut
costs. But the accelerating loss of landlines will put increasing pressure on profit margins, argues Mr
Moffett, as the high fixed cost of running the network is spread over an ever smaller number of
customers. It is also likely to lead to higher bills for captive customers such as businesses with
switchboards, which cannot do away with their landlines so easily.
Even if Verizon and AT&T can overcome their “wireline problem”, says Mr Moffett, it will not go away. Most
telecoms operators do not have a mobile business to fall back on. Fairpoint, a firm which took over some
of Verizon’s landline business, is struggling. Hawaiian Telcom filed for bankruptcy in December, not least
because it was losing landline customers at a rapid clip. Such a fate raises the question of what will
happen to the industry’s huge unfunded pension liabilities. Taken together, the future obligations of AT&T
and Verizon are as big as those of General Motors before its recent bankruptcy.
Regulators will not just have to decide whether to subsidise or bail out landline firms. They will also have
to make sure that public goods delivered via the old telephone network continue to be provided. The calltracing
software used by firefighters, ambulance services and many other “first responders” only works on
landlines. And the government-imposed cross-subsidy scheme to ensure that anyone who wants a
telephone line can have one is primarily geared towards landlines. As the number of lines goes down, the
subsidy required to provide lines to remote locations and poor customers will have to rise.
The danger, says Mr Moffett, is that regulators will introduce new taxes on wireless and broadband
services. Revenues from new services would then be used to keep an obsolete infrastructure alive—a
recipe for lower growth. At that point, he says, the “wireline problem” really will be everyone’s problem.
Copyright © 2009 The Economist Newspaper and The Economist Group. All rights reserved.
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