What's really killing the land-line telephone business.

Commentary about business and finance.
July 25 2008 1:05 PM

Phones Without Homes

What's really killing the land-line telephone business.

A rotary phone
Are land lines becoming as antiquated as rotary phones?

It's not exactly insightful to point out that young people don't feel the need to have old-fashioned telephones, the kind that are tethered to a house via a wire and provided by a descendant of the original AT&T. This week, when I conducted an informal survey of summer interns and the under-30 set in the offices of both Slate and Newsweek, inquiring whether they had telephones in their sorority houses and shared urban rentals, I was greeted with doleful, patronizing, silly-old-man smiles. The few who did have home phones used Skype. One had a phone at home that was part of a triple-play offering from the local cable company. "Nobody uses it." Adults are finding that they don't need the lines in anywhere near the numbers they used to—and it can't be chalked up simply to instant messing displacing phone conversations and cell phones displacing housebound phones. The economy is playing its part, too.

At first, as this massive FCC report shows (see the charge on Page 29 of the PDF), the rise of the Internet and the telecommunications revolution of the 1990s was a boon to the wired-phone industry. In the mid-to-late-1990s, even as the number of wireless subscribers exploded (Page 232), the number of access lines provided by incumbent local exchange carriers rose at a rate greater than that of the overall economy, with the number of lines rising nearly 24 percent from 142.4 million in 1992 to 186.6 million in 1999. Growth was driven in part by millions of people hooking up faxes and adding dedicated lines so that they could dial up to AOL. (Yes, kids, that's how we used to do it in the dark ages.)

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Since 2000, however, it's been a different story. Wireless has continued to boom, up from 109.5 million subscribers in December 2000 to 233 million in December 2006, but the number of land lines has fallen somewhere between 4 and 6 percent in every year since 2000. The result: The number of incumbent local exchange carriers' access lines in 2006 was back down to 140 million, about the same level as in 1991 and off about one-quarter from the 2000 peak. The growth and convenience of wireless have played a role, and so, too, have the rise in broadband Internet access and the availability of phone service from cable companies and outfits such as Vonage and Skype.

But in the past year, a new and unexpected woe has been crushing the land-line business: the economy. In the past, a few quarters of slow growth wouldn't have meant really bad news for basic telephony subscribers. The telephone at home has long been a utility, not a discretionary item. (This FCC telephone subscribership report [PDF] shows that the percentage of homes with telephone service has held remarkably steady in recent decades.)  But in this first real slowdown of the wireless age, consumers seem to be saying that home-based telephones are expendable luxuries, like Starbucks lattes or Coach handbags. And it makes sense. Confronted with high inflation, soaring energy costs, and stagnant wages, millions of households are facing choices about which monthly bills to pay and which commitments to maintain. And if it comes down to one or the other, the mobile or the home-based land line, it's clear which is a necessity and which is an option. One lets you make telephone calls only from your house. The other lets you make telephone calls from anywhere, send e-mails, surf the Internet, play music, and take photographs.

Another feature of today's economic climate favors wireless over land-lines: the real estate mess. According to RealtyTrac, foreclosures are booming. In the first half of 2008, there were 1.4 million foreclosures. The company is projecting at least 2 million foreclosures for 2008. When people under financial duress move out of their homes, they're likely to disconnect the land line and find some temporary arrangement (a rental, staying with friends or relatives), which makes it unlikely they'll acquire a new land line. What's more, the number of vacant homes is at a record (about 3 million), and none of them needs a land line.

And so this year, the rate of decline of land lines has accelerated sharply. AT&T, which provides wired service in 22 states (PDF), just reported its second-quarter results (PDF). The wireless sector (72.9 million subscribers) continued to grow, adding 1.3 million net subscribers in the quarter. But revenues in the land-line voice services were down 7.8 percent from the first quarter of 2007. The information on the number of consumer lines is tough to find. But if you look on Page 25 of the 2007 annual report (PDF), you'll see that the number of retail consumer lines fell from 37.12 million in 2006 to 35.05 million in 2007, off 5.6 percent. In the first quarter of 2008, according to AT&T's 10-Q, the company lost another 870,000 consumer land-line subscribers, or another 2.5 percent.

Verizon is suffering similar land-line declines. By the 2008 first quarter (PDF), its vast wireless unit had added 1.5 million customers since the 2007 first quarter. But as these data show (PDF), the number of residential lines fell from 27.06 million to 24.11 million, a 10.9 percent decrease. Qwest has seen its number of primary and additional consumer lines fall (PDF) from 8.63 million in March 2006 to 7.17 million in March 2008, a decline of 17 percent.

At this rate of decline, within a few years the push-button wired telephone with service provided by a Bell company could be as rare and obsolete as a rotary phone is today.

Daniel Gross is a longtime Slate contributor. His most recent book is Better, Stronger, Faster. Follow him on Twitter.

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