Home phones expected to ‘just go away’

Former Toronto Maple Leafs enforcer Tie Domi picked up a new gig this year, as pitchman for voice-over-IP provider Comwave Networks Inc. in which he urges customers to “stand up to the big guys” by switching home-phone services. The cheaper home-phone offerings provided by companies like Comwave—which advertises its rates as low as $10—might take aim at traditional telcos, though they’re also set to be affected by the same phenomenon that is, it seems, driving traditional home-phone services into the history books. “If it’s $10 of unnecessary expense because you’re paying your $60 of wireless bill anyway, I think that part of that business is certainly coming to an end like everyone else’s because the phenomenon is that people are not using the home phone as much,” Cannacord Genuity analyst Dvai Ghose said in an interview. “So the cheaper it is, the more likely they’re going to use, but at some point you think even if it’s a buck, it’s a buck more than I need to spend.” It’s that kind of thinking that’s likely driving down the number of phone lines, subscribers and revenues in the industry, which the CRTC’s and companies’ figures shows, and driving down home-phone revenues as a share of overall revenues at companies like BCE Inc. and Telus Corp. even faster. The number of local home-phone lines began dropping in 2007, according to data in the CRTC’s 2009 Communication Monitoring Report, after growing in 2004 and 2005 to reach 21 million in 2006. After that, the number of local lines, excluding access-independent VoIP providers, dropped from 20.95 million in 2008 to 19.39 million in 2012, the CRTC said in the 2013 edition of the report—a drop of 7.4 per cent. In the same period of time, the number of local telephone connections per household dropped from 1.0 to 0.89, while the number of wireless or cellular connections per household increased from 1.7 to 2.0 during that time, the CRTC said. The proportion of wireline-only subscribers fell from 47.1 per cent of households in 2001 to 19.9 per cent in 2011, while the number of wireless-only households grew from 1.7 per cent to 12.8 per cent in the same time period, it said. The idea of what kind of services a home needs is undergoing a societal shift, Ghose said. “Ultimately, there’s the concept of a home. What the home takes is changing, and it’s more of a generational change than, I think, a revolutionary change,” he said. “I assume my children will probably not have the home-phone connection. They won’t have the TV connection.” MacDougall, MacDougall & MacTier analyst Troy Crandall said the majority of the decline is due to substitution, both of wireless and online alternatives. “Mostly wireless, especially in the younger age category,” he said. “I would probably say 40 and under now, a lot forego a home phone in favour of having a cellphone, or each member of the family having a cellphone,” he said. “So that’s one of the reasons, and obviously the second substitution is just from voice-over-IP, and that’s more of an effect from those that use long distance a lot … Skype and just alternative data telephony… in lieu of a home phone.” He noted cable companies that began offering home services relatively recently, like Quebecor Inc. subsidiary Videotron, are still gaining telephony subscribers, albeit at a low rate. “Part of that is they’re relatively new to the game. … They started with zero less than 10 years ago, so when you’re at zero you can’t lose too many,” he said. “Because they came off a base of zero, rather than a base of millions like Telus and Bell, they’re actually adding them.” Ghose said it won’t take long until the same phenomenon starts to affect cablecos. “For the first time ever in my recollection, , a cableco, reported a net decline in phone lines, and I think that’s a portend of things to come. You can expect cable, over the next two years, to start reporting significant phone-line loss as well,” he said. “Traditionally, from 2005, when the cablecos launched VoIP collectively in Canada, voice was a growth area for them. Clearly it’s not a growth area anymore, and I think in relatively small order, it’ll become an area of contraction for them as well.” The aim for telcos, Ghose said, has to be to slow down the “inevitable.” And as companies have aimed to do that, their home-phone revenues have been falling. While neither Bell nor Telus report average revenue per line, CRTC’s data shows that while the number of lines is dropping, companies are also earning less per line. Between 2009 and 2012, the average monthly revenue per residential line dropped from $44.62 to $40.77, a fall of 8.6 per cent. The average monthly revenue per business line fell from $63.55 to $57.67, a 9.25 per cent drop. The companies themselves are also contributing to the problem, by lowering prices in a bid to keep customers. According to the CRTC data, total local and access revenues in the wireline voice market sector fell 10.1 per cent, from $9.55 billion in 2008 to $8.58 billion in 2012. That figure includes local service to residential, business and wholesale customers, including cable- and VoIP–based services. Long-distance revenues, which includes revenue from residential, business and wholesale for both traditional phone companies and cable and VoIP, as well as dial-around services, long-distance payphone calls and toll-free services, fell 35 per cent, from $4.15 billion to $2.69 billion, over that time, the CRTC said. “Certainly, to date, the pressure’s really been on the long-distance side, but you have seen some significant re-price on the local side as well, in order to try and retain lines,” Ghose said. “Because when you lose a line, you don’t lose a lot of cost. … The incremental margin is huge, so it’s obviously preferable to re-price it down to a lower ARPU than lose it altogether.” Crandall added companies like Bell and Telus can also use bundling strategies to hold onto subscribers. “With more people taking bundles, when you do take a bundle, generally you get a discount on your services, and one of the services that seems to be a little more heavily discounted … it would appear seems to be the home-phone lines,” he said. As both subscribers and revenue declined, the importance of landlines for telcos’ bottom lines has dropped even more dramatically over the past decade. According to numbers provided by Telus spokesman Chris Gerritsen, wireline local revenues made up 49 per cent of revenues in 2000, while wireline long-distance revenues made up 23 per cent. Together, they made up 72 per cent of revenues, compared to 28 per cent for wireless and data. In the 12 months ending Sept. 30 this year, those percentages had reversed; wireline voice, both local and long distance, were responsible for only 20 per cent of revenues. According to numbers reported in Bell’s annual financial reports, local, access and long distance revenues made up 49 per cent of the company’s revenues in 2000; by 2012, that number had dropped to 17.19 per cent. Crandall noted companies have been diversifying their offerings. “They’re getting more revenue from other sources, so you’re seeing them diversify out into other areas, like for instance, obviously, Bell has diversified out into TV content and things like that now. So the home-phone portion, as a percentage of revenue isn’t as big, just that on its own, let alone declining access lines,” Crandall said. While home phone may look like it’s disappearing, it could also transform itself into something entirely different. “Home phone, probably, in say another decade or two, won’t be what we think of as home phone,” said Crandall. He said, eventually, it’s likely the lines between services such as TV, Internet and over-the-top services will start to blur, and phone service will become just another feature. For instance, customers could use an interactive television set to call a relative, he said. Jeff Kagan, an independent technology analyst in Atlanta, said that the entire industry has been transforming and will continue to do so. While customers used to buy services like cable and home phone from separate companies, now companies sell a variety of services. “Going forward, everything is going to be over the Internet, not the telephone networks, not the cable television networks, but the Internet,” he said. Companies are increasingly offering wireless home-phone services, he added. It’s happening in Canada, too. In June, Rogers launched wireless home phone and business phone services in areas of the country where its landline services aren’t available. “The traditional telephone network, I’m not sure when they’re going to pull the plug on it. It’s not soon, but 10 years, 20 years?” Kagan said. “At some point, the traditional telephone network is just going to go away.” —With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Derek Abma at dabma@thewirereport.ca

Home phones expected to ‘just go away’

News | November 20, 2013

Unlock all the Canadian telecom, broadcasting and digital media news you need.

FREE TRIAL

SUBSCRIBE

Inside The Wire Report

Information

Hill Times Publishing

Get in Touch With Us