In business, landlines are going mobile

Over the course of the past year, several Canadian telecoms have introduced systems that allow small businesses to use their mobile phones with landline functionality, a move that highlights a shift away from landline services in the office. Late last month, Rogers Communications Inc. launched a product that allows small businesses to use their mobile phones but still have access to landline features, such as a fully automated answering system, incoming calls that will be rerouted until someone answers and numbers that can adopt local identities. The Rogers Unison service is the latest name in a list with similar features introduced in a span of just over a year. That includes BCE Inc.’s Bell Total Connect, launched in May, Telus Corp.’s Business Connect, launched last year, and Shaw Communications Inc.’s SmartVoice, also introduced last year. “We’re seeing traditional telephone ebb away,” Jeff Kagan, an independent wireless analyst based in Atlanta, said in a phone interview. It’s part of the same trend that’s seen Internet-based services like voice-over-Internet-protocol (VoIP) and IPTV grow over the past 10 years, he said. The new technologies will be able to “capture that declining base” of landline customers, Desmond Lau, a telecom analyst at Veritas Investment Research Corporation in Toronto, said in a phone interview. While Rogers’ introduction of Unison has the potential to cannibalize its landline business, Lau said “it’s far more in that this product should expect to take market share from the telcos.” According to an analyst note by Lau’s company, of the $3.9 billion in revenue the CRTC indicated in its latest Communications Monitoring Report that the business telephone and long-distance market in Canada generated in 2014, only about eight per cent is held by the cable-based carriers (Rogers, Quebecor, Shaw, Cogeco, Eastlink), with 86 per cent being held by the incumbent telcos. It’s also beneficial for Rogers’ metrics. Unison is available to existing Share Everything customers, which Lau said is helpful to the company’s wireless average revenue per user (ARPU). Adding existing customers to Unison also keeps Rogers from losing them to the competition. “It just makes it a bit more sticky because every product that you have, every additional line that you have, is just going to reduce the churn,” Lau said. One of the reasons landlines used to be appealing was the need for businesses to be listed in the phone book, before the usage of phone books to find contact information fell by the wayside, noted Iain Grant, an analyst at technology research and consulting company Seaboard Group Inc. in an email. “The one thing that used to be the key differentiator for a small business that made landlines attractive was the associated Yellow Pages listing and the directory listing itself,” he said. Shifts in how Canadians work also support the emergence of new services. For instance, research produced by International Data Corp.’s Canadian division in its Canadian Mobile Worker 2014-2018 Forecast — based on a national survey of around 500 Canadian IT and business executives with sources including Statistics Canada’s Labour Force Survey data — found that 75.5 per cent of employed Canadians, or 14 million, will spend at least a portion of their day working outside the office or away from their desks by 2018. And the smartphones are already present in the workplace. While carriers have stopped reporting smartphone penetration, Lau believes that the numbers that were last reported — close to 90 per cent for all post-paid retail customers — are actually higher for business customers. But increased mobility is only part of the equation; the high cost of maintaining landline communication services, especially now that mobile has become a primary communication device in the workplace, has made the investment hard to justify. “One of the things that staggers me is the cost of a fixed line telephone for a small business,” Rogers CEO Guy Laurence said on a second-quarter earnings conference call to analysts last month. “I mean it just seems punitive pricing to me. I can’t believe that the companies have gotten away with it for years.” The Unison service will cost $15 per line per month, Charlie Wade, Rogers’ senior vice president of products and solutions, said in a phone interview on the day Unison was introduced. That’s a fraction of the between $25 to $50 that Rogers estimates customers spend on landline phones, he said. “We certainly think there is a big demand for this in the Canadian marketplace,” Wade added. But Lau said that, although landlines have been in decline, the prices have actually gone up “to the point it’s close to almost $40 per line. That’s a really expensive price, when you think about it, for such an old technology.” In trying to explain the move by companies to save some dollars for small businesses while perhaps undercutting their own landline businesses, Lau said, “it’s been a balance of monetization for the telcos, basically trying to get the most money out of those guys that they can while balancing the risk of all the customers just leaving because they think that the service is too expensive.” “There’s such a big lucrative base of customers still,” Lau said. “Although it’s declining, the margins on those landlines are really high.” He added the telcos have been able to be more price-discriminatory in their strategies by focusing on the customers that actually want a landline, as opposed to forcing it on them in a bundle. Research comissioned by Rogers has found that the cost of telecommunications services is a challenge for a majority of small business respondents. About 55 per cent of those respondents said the cost of telecommunication services was a challenge, with 37 per cent, or one-third, saying it was the single greatest challenge facing their business. About 38 per cent of small businesses in Canada still use landlines versus 21 per cent of medium to large companies. A quarter of all respondents said telecom service was the greatest challenge to their business. The online survey was conducted by Maru VC/RC with representatives from 684 companies of various sizes in February and April 2016. No margin of error was reported. The CRTC’s latest Communications Monitoring Report provides a glimpse at the decline of the traditional telco business landlines. From 2010 to 2014, declines in business lines among telco incumbents operating in their traditional territories fell from 4.7 million in 2010 to 4 million in 2014, a compounded annual growth rate of minus 3.7. Between that same period, revenues from local and long distance revenue for incumbents fell from $3.5 billion in 2010 and to $2.97 billion by 2014, at no time seeing growth in that period. Cable-based carriers’ lines grew over that time, increasing from 303,000 to 571,000, while their local revenues increased at the same time long-distance fell, making for a total of $310 million in revenues in 2014, compared to $232 million in 2010. The overall numbers of home landlines are falling, too, The Wire Report previously reported. In 2014, for the first time, more Canadian households exclusively subscribed to mobile wireless services, at 20.4 per cent, versus wireline phone services (14.4 per cent). The change has swept with it those companies that were unable to pivot away from the once-lucrative model. In January, the CEO of debt-burdened Primus Telecommunications Canada Inc., which filed for creditor protection, said the company simply relied too heavily on landline phone service revenue. Duncan Stewart, director of technology, media and telecommunications research at Deloitte Touche Tohmatsu Ltd., said that in many scenarios — a business starting up in a new building or even one that is moving into a building pre-wired with twisted-pair cables for landlines — the cost of a landline doesn’t make much sense. He added that research conducted by his company found that people are just not talking on their phones like they used to. “We’re moving toward talking less and using email, text, chat, bots,” Stewart said. “As you move toward asynchronous text-based communication, having a phone on your desk makes less and less sense.” But landlines still have their place, and there will be businesses resistant to change. “It’s critical to understand that there are going to be many people who have traditional twisted-pair landline phones in their businesses 10 and even 20 years from now, so it’s going down but it ain’t going to zero,” Stewart said. Wade said Rogers is planning to have a landline component to Unison as well. “In fact, our next release of this product will have a fixed capability as well, because we recognize that some customers want to have fixed phones, as well as the mobile phones.” He added that some small business customers are likely “only keeping hold of the landlines because they need the number — it’s on their bill, it’s on their advertising, it’s on their business cards, it could even be on the front of their store — and therefore the cost of change is massive.” Not to mention that landline phones are reliable. “Most of the time, we do almost everything over a unified messaging voice over IP and it works like a charm most of the time,” Stewart said of Deloitte. But “there have been times where…for whatever reason the technology isn’t working right and we go back to, ‘can you phone me on a traditional phone call?’” — With reporting by Ahmad Hathout at ahathout@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

In business, landlines are going mobile

News | August 2, 2016

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