The Federal Communications Commission’s (FCC) newly released report on local phone competition lends credence to USTelecom’s recent petition asking the FCC to declare incumbent local exchange carriers (ILECs) non-dominant in providing switched access services. The petition argues that a relatively small, and rapidly declining, portion of customers use ILEC voice services over the public switched telephone network (PSTN). Driving the shift away from the PSTN are customers going wireless-only or switching to interconnected Voice over Internet Protocol (VoIP) services, mostly from cable operators but also, to a small degree, from over-the-top providers (e.g., Vonage) and ILECs’ own VoIP offerings. In the petition, we estimated that less than 40 percent of U.S. households used switched PSTN voice service at the end of 2011 and we projected that figure would fall to less than one-third of households by the end of 2012.
We plan to issue a full, in-depth update to our household penetration analysis in the near future. For now, based on an initial review of these new FCC data, it appears that our estimated shift away from the PSTN for 2011 was largely on target. Thus, as noted in the USTelecom petition, the portion of households using ILEC switched services today is significantly less than the market share at which: 1) AT&T was determined to be not dominant in providing long distance service in the mid-1990s: and 2) cable television operators were found to be not dominant in providing subscription video just last year.
Here are a few key data points from the FCC semi-annual report, from year-end 2010 to year-end 2011:
- For ILECs and their competitors, total switched access lines fell from 117.9 million to 106.9 million, a decline of 9.3 percent (see Figure 1 of the FCC year-end 2011 report)
- For ILECs, including both business and residential customers, retail switched lines fell from 94.6 million to 84.7 million, a decline of 10.4 percent; retail switched and VoIP lines fell from 97.5 million to 89.4 million, a decline of 8.3 percent (see Table 5 of the FCC year-end 2011 report).
- For ILECs, including only residential customers, retail switched lines fell from 55.7 million to 48.4 million, a decline of 13.2 percent; retail residential switched plus VoIP lines fell from 58.2 million to 52.5 million, a decline of 9.7 percent (see Figure 4 of the FCC year-end 2011 and year-end 2010 reports).
While these latest FCC data confirm there has been a clear shift away from ILEC switched access services, they are limited and tell only a small part of the story. First, the data reflect year-end 2011 and are therefore still a year behind the current market. Second, while the data cover total wireless subscriptions, they do not capture trends in wireless substitution, whereby consumers drop landline service altogether. The Centers for Disease Control data indicate that almost 37 percent of telephone households were wireless-only in early 2012, likely approaching 40 percent by year-end. Third, the FCC data do not capture non-interconnected voice and video communications, like Skype and FaceTime; nor do they capture non-voice communications, such as email, text messaging, and social networking. USTelecom has produced research finding many of these rapidly growing alternatives to traditional landline voice services are also, in fact, more widely adopted.
Bottom line: by any reasonable measure ILECs are no longer dominant in providing voice services. The share has fallen significantly and continues to decline at a rapid pace. Even with narrow measures looking only at wireless and interconnected VoIP alternatives, it remains likely that by the end of 2012, one-third or less of households purchased ILEC switched voice service.