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Memory Lane - Parallel Lines

Wed, 08/31/2011 - 8:25pm
Stewart Schley Media & technology writer, Denver, Colo.

When it comes to subscriber erosion, a loss is a loss, and when they start, they can be difficult to arrest.

Nobody paid much attention at the end of 2001 when the number of U.S. telephone lines in service declined for the first time since the Great Depression. According to an annual report published by the Federal Communications Commission, the number of lines edged down by 0.4 percent that year from 2000, representing a loss of 815,915 connections from a beginning base of 192 million. Slightly worse was the downturn recorded by incumbent local exchange carriers – the large regional telcos – which shed 4.1 percent of their lines that same year, losing more than 7 million.

Stewart SchleyIn retrospect, the numbers should have been startling. The year before, telephone companies had added 3.5 million lines, and over the previous 10-year span, the industry had added 52 million lines, thanks to an enduring housing boom and a jump in demand for fax and Internet lines.

At the time, though, there was little concern. The ILEC losses could be chalked up to rising competition from competitive LECs, which had grabbed 13 percent of the market by 2002. And the barely measureable decline in total lines? It was so slight you could dismiss it as a statistical aberration, or, as many did, a product of the recession of 2001.

Yet looking back, it’s apparent that 2001 was the start of something big. Since then, the landline phone category has lost more than 17 percent of its subscriber base. The erosion of phone lines and wireline phone penetration has reordered the U.S. telecommunications economy, prompting “phone” companies to make risky bets in video and data to refill a leaking bucket of telephone connections and revenues.

Yet the sentiment in the industry at the time seemed to be dismissive of what we now know was the hard reality: The phone business was in the early innings of an historic decline, sparked in large measure by technology substitution – in this case, mobile phones for fixed line connections. But hardly anybody was talking about it.

Verizon’s 2001 Annual Report to Shareholders made note of a 2.1 percent decline in access lines, but it attributed the downward trajectory to the economy and rising competition, not to the technology-substitution culprit. “Our switched access lines in service declined 2.1 percent from Dec. 31, 2000, primarily reflecting the impact of an economic slowdown and competition for some local services,” Verizon wrote.

A similar storyline came from AT&T, which by 2001 was in the cable business in a big way, thanks to its acquisitions of Tele-Communications Inc. and MediaOne. Chairman Michael Armstrong avoided the landline loss subject entirely in his letter to shareholders, and the report focused instead on growth opportunities from AT&T’s budding cable digital phone operations.

Regional telco Qwest Communications was more forthcoming. Its 2001 annual report to the SEC acknowledged that technology substitution was beginning to take a toll. Qwest said its landline losses “were the result of the slowing economy, competitive losses and technology displacement (for example, where a wireless phone replaces the need for a land-based telephone line).”

You can’t blame telcos for failing to sound a louder alarm about technology substitution. After all, there was nowhere positive to take the story, if it turned out to be true. Plus, they were already reeling from a decline in long-distance revenues that also was sparked by wireless phones. Instead, the big telcos focused their PR efforts on brighter-picture issues, like a thriving DSL market and, as AT&T put it, “a boundless future” offering “instant access to information, communication and entertainment.”

Drawing a direct line between the telephone industry PR spin of 2001 and the pay-TV industry’s characterization of subscriber losses in the summer of 2011 is probably too big of a leap. And the final numbers aren’t in yet. Remember that the telcos lost 0.4 percent of their landlines in 2001. In the 2011 second quarter, typically the worst of the year, the U.S. pay-TV industry lost less than 0.2 percent, but it may well make up for it in the second half.

But it would be equally naïve to think there isn’t some possibility of kinship between the telcos’ circumstance in 2001, at the beginning of a convulsive era of line loss, and the state of the pay-TV market today, where Internet video substitution, however slight, offers an alternative that didn’t used to exist. When it comes to subscriber erosion, a loss is a loss, and when they start, they can be difficult to arrest. Just ask the telcos.

E-Mail: stewart@stewartschley.com

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