Wireless, Broadband Changing Face of Telecom

Traditional telephone service has been replaced by new communications options in 1.7 percent of U.S. households, according to Forrester Research, but the chance of your wireline touch-tone becoming an antique anytime soon is still pretty slim.

Forrester predicts that more than 5 million American households will migrate to mobile and high-speed broadband networks for their primary connection by 2006, and it will cost today’s telecom giants nearly $9 billion.

“Half of this loss — more than $4.5 billion — will come out of lost revenue from highly profitable services such as voicemail and call waiting,” said Charles Golvin, senior analyst at Forrester. “This means that traditional service providers, which today own 57 percent of the consumer telecom budget, will see their share reduced to 36 percent in the next five years.”

During the next five years, Forrester expects wireless phones will gain 11 percent of household spending as the average number of mobile phones grows to 2.2 per household. Before you can declare the days of the wireline phone numbered, however, you have to examine how much wireless phone usage is coming at the expense of wireline service.

A June 2001 survey by Gartner Dataquest found that nearly 6 percent of all U.S. households had replaced a traditional telephony access line with alternative communications modalities. But if, as the research suggested, many of these households purchased alternative, feature-rich and higher-priced forms of communication equipment, that wouldn’t necessarily be bad news for telecommunications providers.

According to a study by International Data Corp. (IDC), by the end of 2001, 10 million access lines were displaced by wireless, primarily by consumers choosing a wireless service over installing an additional access line at home. IDC predicts that displacement of wireline services is expected to accelerate even more in 2002, resulting in an additional 10 million access lines replaced by wireless by 2005.

Forrester predicts that 5.5 million consumers will give up their second land lines and 2.3 million will drop their primary lines for wireless in the next five years.

There’s no debating the increasing popularity of wireless voice service. According to a U.S. Census Bureau Statistical Abstract of the United States, nearly 110 million people in the United States used a cellular telephone in 2000. That’s way up from 5 million in 1990. Worldwide, Strategy Analytics expects cellular subscribers to increase from nearly 900 million at the end of 2001, to 1.9 billion by the end of 2006. The reason for the shift is simple — wireless voice service, in the United States in particular, is getting less expensive.

Back in 1990 when there were 5 million wireless users in the United States, the average monthly cell phone bill was $81, according to Lars Johnson, technical coordinator of the Census Bureau’s Statistical Abstract. By 2000, the monthly bill fell to $45.

But Forrester’s research also warns telcoms that broadband could take revenue away from fixed-line providers and dial-up ISPs because by 2006, 50 percent of households will subscribe to broadband for voice and data.

Fixed-line operators and ISPs will feel the effects as early as this year, Forrester found. A second wave of displacement — pushing voice to broadband networks and making wireless the preferred data channel — will further challenge carriers.

“Broadband providers will also take voice business away from traditional service providers as they begin to offer voice over IP service in 2002,” Golvin said. “By 2006, these packet voice offerings will displace 4.26 million traditional lines and nearly $1.5 billion in annual revenue.”

Annual Revenue By Telecom Type
2001 2002 2003 2004 2005 2006
Broadband $6.0 $10.3 $15.3 $19.7 $22.4 $23.3
Wireless $46.5 $53.7 $66.6 $74.6 $81.6 $85.1
Dial-up $8.6 $10.7 $10.9 $8.6 $6.8 $5.4
Long-distance $18.9 $17.6 $17.5 $16.9 $16.2 $15.6
Local $40.8 $40.8 $40.6 $40.1 $37.6 $34.5
Total $120.8 $133.1 $150.9 $159.9 $164.6 $163.9
Source: Forrester Research

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