Despite being ignored for years, landline voice service — once the cornerstone of cable’s triple-play bundle — is on the decline, but it’s not quite dead yet.
In fact, a new analysis from Sanford Bernstein telecom analyst Paul de Sa indicates cable can count on that revenue for quite a few more years.
Landline telephony has been almost an after thought in recent years, a service considered to be more of a retention tool than a product that brings in customers, like broadband or even video to an extent.
That is evident in buy-rates: Over the past five years, telephony adds for the four publicly traded operators have lagged broadband additions by a ratio of almost 2 to 1.
“By now, residential wireline voice service should have ceased to be,” de Sa wrote in his report. “There seems to be little reason why any consumer would pay $30 a month or more for a phone line.”
But the data shows a different trend, he noted. According to the National Center for Health Statistics National Health Interview Survey (NHIS), which obtained information from 21,517 households, more than half of the homes surveyed had a landline.
And the trajectory suggests landline service might not disappear for at least another decade or more, according to the data.
Landline voice customers won’t trend to zero at least until 2026, de Sa estimated, adding that he thinks there probably will always be a customer segment that retains a landline for emergencies or because wireless service is spotty.
Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak agreed that landline telephony still has some life left, but added that ARPUs will continue to decline.
“Overall, traditional fixed phone growth is likely to continue to decline but I imagine it will last longer than people think,” Wlodarczak said.
That could have similar implications for pay TV and telephone company digital subscriber line (DSL) service.
According to NHIS, wireless-only homes are generally younger: 71% of respondents aged 25 to 29 didn’t have a landline, compared to 19% of those older than 65.
But they also were less affluent: 67% of renters were wireless-only subscribers, compared to 37.3% of homeowners. Adults in poverty (59.3%) and near poverty (54.4%) were more likely than higher-income adults (45.7%) to live in a household with only wireless phones.
The Sanford Bernstein analyst had three reasons for voice’s slower-than-expected decline:
Inertia: The opportunities to buy residential telecom services are few: Mostly when a new household is formed, due to a change in address or because of unacceptably high levels of frustration with the current provider.
“The answer to the question of why households still have residential voice (or DSL or pay TV) in the face of new alternatives that appear to offer superior value propositions may just be that they’ve had it in the past and there’s no particular reason to change,” he said.
Segmentation: While usage patterns vary differently among households, the behavior of a particular segment is unlikely to be representative of the entire base. The NHIS data shows differences in voice penetration around age, household makeup and income, just as value propositions for slower, cheaper DSL service compared to cable broadband, or pay TV (with traditional or “skinny” bundles) compared to over-the-top video, will probably continue to be appealing to a large population segment.
Pricing and retention strategies: Voice ARPU has declined over the past decade, but that is largely due to segment-specific offers like bundling, instead of mass repricing. According to de Sa, there are ways to keep customers and maintain penetration rates by offering products with different price points (like varied amounts of long-distance minutes for voice, different speeds for broadband and different channel bundles for pay TV) and through discounts or other promotions when subscribers call to disconnect.
“As with mobile, the cost of these retention efforts is generally invisible to investors relying on reported financials, only being revealed in the long term as the offers work through the base,” de Sa wrote. “Metrics such as net adds and churn can therefore be misleading from a value-creation perspective, though they garner attention and drive stock movements around the quarter.”
Cable telephony customer adds for the four publicly traded cableoperators (Comcast, Time Warner Cable, Charter and Cablevision) have lagged broadband by a nearly two-to-one margin over the past five years. (Figures in thousands)
2010 2011 2012 2013 2014 Total
Telephony Adds. . . . 1,602. . . . 1,022. . . . . . 1,003 . . . . . . . . . 776 . . . . . . . 1,088 . . . . . . 5,410
Broadband Adds . . . 2,064 . . . 1,897. . . . . . 2,039 . . . . . . . . . 1,791 . . . . . . . 2,236. . . . . 10,027
SOURCE: Company reports