Telcos are shrinking, study says

(Read part one of this two-part story here.)

The latest in an annual study of the bundled services market shows US telecom service providers are losing wireline voice customers at a faster pace and being transformed in the process into companies that will look very different from their traditional telecom roots. The Battle for the American Couch Potato: Bundling, TV, Internet, Telephone, Wireless, released this week by the Convergence Consulting Group, shows maintaining a broadband connection is increasingly important to telecom providers, as wireline voice services become much less important.

"Over the next couple of years, these companies will be born again in terms of upgrading their networks," said Brahm Eiley, an analyst with Convergence Consulting and an author of the report. "Verizon is almost done, AT&T still has a way to go, but once they finish this process, they will be much stronger companies. But they will be half the size they were at the early part of the decade. Looking at the amount of residential wireline loss, from the end of 2005 to the start of 2011, AT&T will be half its size in terms of residential telephone customers – so will Verizon and so will Qwest. It’s quite radical what is happening to this industry."

In addition, Eiley states, AT&T and Verizon, in particular, are almost two different companies inside one. Where Verizon has deployed FiOS and where AT&T has deployed U-Verse, they are very different competitors for the service bundle than in areas where those advanced networks are still not available and may not be deployed. 

Cable companies are currently doing a better job of getting their pay TV customers to also buy broadband services, with a double-play base estimated by the Couch Potato study at 61% of their customer base in 2008 and a 23% share of the residential phone market. Telecom service providers’ double-play TV/Internet base was 33% of their customer in 2008, expected to increase to 54% by 2011. "Cable has done a better job of pushing broadband to its TV subscribers," Eiley said. "That’s why it’s easier for cable companies to add voice customers than for telcos to add TV customers.

But as consumers cut the telephone cord – many for budget reasons – cable is losing out at a faster pace to wireless substitution, Eiley said. The wireline telephone loss in 2008 was 10%, he said, and wireless substitution accounted for half of that. Convergence Consulting estimated wireless-only households at 20% in 2008, growing to 27.5% by 2011.

The Coach Potato study predicts telecom service providers in the US will capture 5.6% of TV subscribers by the end of this year and hit 10% in 2011, well below cable’s voice market share.