21 September 2007

Injecting new life into landlines?

In the US, the number of landlines began declining about 5 years ago. This decline is widely attributed to the increased use of mobile phones and broadband technologies such as DSL and cable modems. This is problematic for most telephone carriers, as a significant fraction of their fixed costs have been incurred relatively independently of the number of subscribers. That is, if a household gives up a second line or fixed line telephone service altogether, virtually all of the infrastructure to support those services remains in place, except that there is now less revenue to support it.

This problem is less acute for Verizon and AT&T, as they have mobile carriers in their investment portfolio, so that the fixed line decrease is offset by increases in mobile revenues. Other companies, like Embarq, Qwest and Windstream, do not have a wireless carriers to offset this revenue decline, so this problem is more serious.

This article in the on-line WSJ (which is unfortunately not available for free) discusses how these companies are trying to provide mobile phone-like services to landline phones, preferably without having to change handsets (CPE). Quoting the article:
In recent years, as phone companies have beefed up their cellphones with a steady stream of enhancements, innovations to the old land-line phone have been slow to come.

But now, in a move largely designed to keep consumers from ditching land lines, phone companies are adding to home phones some of the features popular on mobile devices, like address books and text messaging. And equipment makers' latest home and office phones include a range of new features like in-home video baby monitoring, instant messaging, and access to email and the Web.

The stakes are huge for the phone companies, especially those such as Embarq Corp., Qwest Communications International Inc. and Windstream Corp. that don't own their own wireless networks and are most susceptible to the increasing consumer shift away from traditional phones to cellphones. A recent survey by Harris Interactive Inc. found that 11% of U.S. adults use only their cellphones to make calls.


Embarq is also testing a text-messaging function for home-phone users in some markets. When a text message is sent to a land-line number, the home phone rings, converts the message into audio, and plays it back. The land-line phone user can reply with an audio message or press a button to send a canned text response such as "Thank you" or "Where are you?"

Those new features don't require consumers to buy a new handset, so Embarq can roll them out quickly. But over time, the company hopes to offer a "digital home phone" that will have a screen showing addresses and voicemails and provide basic information like news, weather and sports. The company is already working with manufacturers to build that product. Verizon Communications Inc. is planning to offer a similar device called the Verizon Hub sometime next year.

"I think there's a lot of opportunity to innovate around home phones," says Embarq Chief Executive Dan Hesse. He says that while land-line phones haven't changed much in the past decade, cellphones have seen a boom in innovation. "Why should cellphones have all the fun?" he adds.


Meanwhile, some Internet-phone start-ups are trying to encroach upon the traditional land-line business by offering features that aren't standard with regular land-line phone service. Internet-calling startup Ooma Inc. of Palo Alto, Calif., currently offers users a free second line as well as the ability to listen to voicemails through a Web site.


To be sure, these new land-line phones won't necessarily reverse the trend of consumers giving up land lines for cellphones. There's still one wireless feature they can't match: mobility.

Also, not every cellphone feature translates well to land lines. Embarq began rolling out a service in some markets last fall that allowed home-phone users to assign songs for callers to hear -- similar to "ringback tones" on cellphones. But the initiative fell flat in the early trials, because while choosing a ringback tone "is a personal decision, a home phone is a community device," said Dennis Huber, Embarq's senior vice president of product development.

Mr. Altman says phone companies don't need to get too fancy too fast. Just building easy-to-update contact lists into phones would go a long way with consumers, he said. "That would solve 70% of their problem," Mr. Altman said.

Do you think that innovations like this will make a significant difference in the decline of the landline business?

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