Number portability and the telco death spiral

FCC’s decision to require local number portability between wired and
wireless phones by November 24 could have a mjaor impact on the telecom
industry.  According to the New York Times:

“Industry analysts estimate that 3 percent to 7 percent of telephone
users – or 4.5 million to 10.5 million people – no longer have
traditional land-line phones and rely on cellphone services
exclusively. As many as 15 percent of mobile phone users said they
would consider abandoning their traditional phone service and moving to
exclusively mobile service, according to a survey taken last spring by
the Yankee Group, a market research firm.”

If 15% of customers really do turn off their landline phone service in
the next few years, the impact on the local exchange carriers would be
dramatic.  Back of the envelope numbers:

  • 15% of 150 million US wireless subscribers = 22.5 milion customers switching.
  • Assume an average residential phone bill of $20/month, or $240/year.
  • That’s $5.4 billion in annual revenue the Bells would lose. 

$5.4 billion is a big number.  And it might be a serious
understatement, because those most likely to switch are the most active
customers, who buy the extremely high-margin value-added services like
voicemail and caller ID.  When all’s said and done, the local
telcos could be looking at a $10 billion revenue hit, targeted at their
most profitable offerings. 

And we’re not even talking about VOIP yet.

I have to say, Verizon’s decision to brand both its wireliness and
wireline businesses under the same name is looking very wise right