How Much Demand for Fixed Line Voice Actually Exists?

Some issues never seem to fully be resolved. Whether consumers “prefer” a la carte or bundled services is such a question.

How much demand there really is for some services is another related question.

Service providers sometimes argue that consumers “want one bill” rather than three or four bills. It is argued that consumers want bundles of shows and channels.

And it is clear that consumers prefer to save money, which is the primary attraction of triple play bundles.

But many services are not sold unbundled. “Naked digital subscriber line ” is one such product in many countries. DSL cannot be purchased without a tied purchase of a fixed phone line. Such product tying is an old practice, and often provides consumer value.

In other cases, the “headline price” differential between a bundled “DSL plus voice line” is significant.

A triple play package generally costs much less than all three services purchased separately, at least for an introductory period.

Some consumers would prefer to buy all of their communication services one by one (a la carte), with no bundling. But discounts matter. Prices matter. So many consumers buy a triple play package because it actually is cheaper than buying two services they really want.

Competition, in many markets, for high speed Internet access and TV subscription services means that bundle deals of three services often are comparable in price to two services at full price.

If the price of the bundle is within $5 to $10 per month of the cost of two services at full price, then even some consumer advocates might recommend purchase of the triple play bundle, especially if the third service is home phone service.

In fact, current promotional offers in the U.S. market, especially when an account can be switched from a competitor, often provide lower prices for a triple play service than a dual play, at least for a year or two.

But that does raise another question. If in fact many consumers are buying triple plays to save money, how much demand actually exists for each of the products?

Many surveys suggest the highest demand of all is for fixed network high speed access. In fact, demand might rival or beat mobile service.

Video entertainment also is purchased by more than 80 percent of U.S. households, while fixed network voice subscriptions have been falling since 2000.

So one wonders how strong the remaining demand is for voice, and might eventually be for the more-expensive video subscription packages, if the assumption is that high speed access is the number one priority for nearly all consumers, along with their mobile service.

To put the matter sharply, were purchase of a fixed network voice line not a requirement for getting high speed access, demand for voice lines would be lower.

Were the price of a triple play service not so affordable, compared to buying just two services, far fewer phone lines would be sold.

The point is that we do not actually know how much demand there really is for fixed network phone service.

One way of assessing demand is to look at what happens in recessions, where consumers have to make harder choices about what to buy.

In recessions, for example, overall revenue falls, as consumers spend less.

The impact of the Great Recession beginning in 2008 is easy enough to describe. According to TeleGeography Research, revenue growth slipped from about seven percent annually to one percent in 2009, returning to about three percent globally in 2011.

But that is “growth rate,” not absolute growth. According to some studies, U.S. consumer spending on communications actually grew, overall, in the wake of the Great Recession. One might hypothesize this is because of the adoption of mobility services, sold to people, not places.

Looking at spending on phones, which grew about 17 percent from 2007 to 2010, one might argue mobile devices drove the increase, for example.

One might also argue that high speed access had become so important, and faster access relatively more important, causing consumers to spend more in that category. But mobility is probably the driver for the revenue growth.

That would be in line with findings that consumption and consumer spending fell virtually across the board in the Great Recession.  

But that might mask some important indicators of value. Some surveys found that device purchases slowed during the Great Recession. Some surveys found less willingness to cut high speed access than other services.

In fact, some surveys found consumers would rather abandon their mobile service than give up fixed high speed access. If they had to give up one service  (video entertainment, mobile, broadband), U.K. consumers would ditch video (49 percent) or mobile (30 percent) before their fixed network broadband connection (two percent), a survey of  more than 10,000 U.K. consumers found, for example.

Consumers have indicated the would give up other products as well to keep their broadband access.

The point is that high speed access arguably is highly resilient in a recession, and arguably the most-valued service, perhaps even be more valued than mobility. But mobility likely would rank as among the next most important service.

By some studies, consumer spending on mobile devices increased during the Great Recession of 2008 and spending also increased for communication services. That pattern hasn’t changed.

But most consumers simply found other ways to economize during the last recession, scaling back premium services for video, for example.

It does not seem that there was much recession impact on subscription video entertainment spending, though some consumers might have dropped a premium channel in favor of expanded basic service.