Voice Switchers or Wireless Substitution?

Wireless substitution is getting lots of attention as voice landline market share shifts and "wireless-only" households register in the low-double-digits in some surveys. Yankee Group surveys have suggested that 15 percent of respondents no longer have wireline phone service.

Indeed, switched access telephony in the United States has decreased by 17 million lines from 2005 to 2008 and is expected to continue to lose another 10 million by 2011, says Patrick Monaghan, Yankee Group senior analyst.

But Monaghan doesn't think wireless substitution explains much of the incumbent line loss. In fact, he says, residential home phone service has only experienced a two-percent year-over-year loss from 2005 to 2008.

That's something on the order of five million subscribers. His conclusion: Most consumers are not cutting the cord. They simply are choosing cable or other providers.

So what's more challenging: wireless substitution or landline market share losses?

Monaghan argues there's an opportunity for incumbent local exchange carriers to hold on to switched access lines. The issue is that customers are deserting to other providers, and ILECs have to decide how long to hold out before offering their own VoIP services, presumably at prices that match generally-prevailing prices.

To the extent that millions of consumers seem to be ditching traditional landlines for lower-cost residential phone services, the issue is how long to wait before responding.

One line of thought is to build broadband-based and wireless revenues and simply let the market share for traditional lines drift slowly lower, rather than triggering an across-the-board price cut.

The other line of thinking--more prevalent in Europe, where retail landline losses have been much more significant--is to get into the game.

So how close are we, in North American markets, to a strategic rethinking of VoIP or "digital phone" service, which seems to be gaining traction as the preferred nomenclature?

And what would drive telco executives to rethink their current positions, which generally is to hold the line on legacy voice pricing and packaging?

AT&T, Verizon and SureWest Communications now offer VoIP or digital voice. So how hard should they push it? For which customer segments?

If Monaghan is right, wireless substitution is less an issue than "cheaper digital voice." But then how to explain the 15 percent of consumers who say they have abandoned wireline?

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