CARRIERS SAID TO NEED NEW TACTICS TO COMBAT LD SUBSTITUTION
Residential wireline long distance (LD) min. of use will decline average 10% per year in U.S. through 2006, Yankee Group said Thurs. With 130 million U.S. wireless users at end of 2001, “penetration of wireless services will only grow in its threat to the wireline voice market,” research firm said in teleconference. Called “substitution” by telcos, consumers increasingly are using wireless phones with regional or national calling plans or sending e-mail or IM instead of calling long distance. Prepaid calling cards and Internet telephony pose much smaller challenge, but “do account for some substitution today,” it said. Yankee Group estimates by 2006 wireline direct-dial long distance market will have lost about 135 billion min. of use to other communications technologies compared with 29 billion substitution min. last year. Of this, 107 billion min. will be wireless calls (from 22 billion 2001) and 27 billion min. e-mail/IM (from 6 billion). Prepaid plans will account for 800 million substitution min., down slightly from 900 million last year. Internet telephony will take least bite from long distance carriers, accounting for 500 million min. from 200 million in 2001, it said.
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
Wireless constitutes largest threat to wireline long distance, said Knox Bricken, senior analyst. According to Yankee Group consumer surveys: 53% of wireline residential customers use wireless service, 20% had replaced “some” phone usage, 11% had replaced “significant percentage of regular phone usage with wireless,” she said. As example, 20% AT&T customers have replaced some regular phone usage with wireless, “that’s 5 million AT&T customers.” Of major long- distance carriers, Sprint has largest percentage of customers (62%) that use wireless because “Sprint is the only carrier that has both its wireless and wireline operations under the same corporate parent,” Bricken said: “There is a minimum of 17 million households at risk for increased wireline displacement by wireless in the future. The question is whether the carriers can afford to overlook these customers and let them go.”
Sprint has better positioned itself to meet market changes compared with AT&T and MCI (WorldCom), said Senior Analyst Aurica Yen: Carrier has “organizational push to use wireless to strengthen overall corporate brand, giving it an ability to leverage ILEC, long-distance and PCS brands.” Through its One Sprint initiative, cross-product bundles and promotions, and integrated billing, Sprint makes its long distance business less tied to a landline, she said. Yankee Group believes wireline long distance carriers can survive through brand and product repositioning. It suggested carriers: (1) Creatively package services and cross-product bundles. (2) Leverage retail channels. (3) Emphasize better customer service. (4) Reduce customer acquisition costs through Web-based self provisioning. (5) “Embrace” substitute products such as IM or voice over IP to contain threat.
Wireline users won’t completely “cut the cord, despite sharp decline of wireless use,” Bricken said. Yankee Group predicts by 2005 44% of all conversation min. will be wireless from less than 7% in 1999, “yet at the same time only 3% of wireless consumers use their wireless phones as their only phone,” she said. Inhibitors to total wireless adoption include: (1) Lack of ubiquitous footprint. “Only one carrier covers 90% of the continental United States… there is no true national carrier.” (2) Specific market segments will always be tied to wireline such as dial-up connections, emergency numbers. (3) Wireless service quality doesn’t provide 99.999% reliability of wireline. (4) Inconveniences such as short handset battery life or in- building reception not reliable. (5) Confusing and changing technology.
Smaller but still significant threat is e-mail/IM, which will continue to grow as Internet penetration increases to about 70% by 2005, said Imran Khan, senior analyst. Of households with PCs and online, 93% primarily access e-mail, 53% use IM services and 37% access chat services, he said: “E-mail and instant messaging are perceived as free by end users once they have established on-line access.” Yankee estimates 48 million households are using IM for both work and personal use. Of these, according to Yankee Group’s 2001 Interactive Consumer Survey, 57% households expect their use of IM to grow over next 12 months, while 38% are asking to access IM over wireless devices, Yen said: “Roughly half of instant messaging households access their IM client more than once a day. The numbers are similar across different ISP customer bases such as AOL, MSN, AT&T Worldnet and EarthLink, and that is interesting given that AOL has the largest [customer] base.” Yankee Group estimates AOL IM share at 57%, followed by MNS (37%), Yahoo (31%), ICQ (20%), Prodigy (1%) and others (7%). “The fact that these numbers don’t add up to 100 percent points to a specific problem: The fact that the lack of standards or an open protocol has instilled in consumers a lack of loyalty.” Consumers subscribe to a number of IM clients to complete their IM transactions, she said.