Bernstein's Craig Moffett in an e-mail blast to clients Friday morning crunched the numbers on one of his favorite topics: the implosion of the phone industry.
The fact that homes are ditching their landline phones is well known (Bernstein says 1 in 4 homes now lack a wired phone; the Centers for Disease Control — why them? I don't know — says 1 in 5). But Moffett does a nice job explaining the historical significance of this and what it could mean to the United States.
The historical data: 10 years ago, wireline penetration was at 97% and each home had 1.3 phone lines in order to deal with, as Moffett says, "'the teenage girl problem' and the 'AOL problem.'"
The former was solved by cell phones, the latter by broadband. That's right, 125% penetration — not bad! Today: not even close.
Cable's competitively priced triple play offerings are increasingly dominating the shrinking wireline phone pie, pushing the telcos to a mere 36% penetration. "To go from 125% to just 36% penetration in a decade and a half is, for any fixed cost business, a death sentence," writes Moffett. But wireless is doing well, right? Unfortunately for them, wireless is still too small of a business compared to wireline to make make up for the shrinkage.
For both AT&T and Verizon, wireline is more than 50% of revenues and an even greater percentage of total costs. And the cost percentage will keep growing as the business shrinks, making it a tougher and tougher problem to deal with.
Monopoly to near death — it's the newspaper story all over again. Except for one major difference: the telcos are huge, possibly even too huge to fail (a moniker now even more desirable than being labeled a "dot com" during the late 1990s). Verizon and AT&T have more than 500,000 employees and more pensioners than GM. And their wireline businesses are essential for first responders, 911, government, small business, etc.
Moffett guesses that government will end up boosting taxes across the communication infrastructure to prop up wireline, a distributed bail out. But, in the end, a bailout all the same.
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