Landlines to Fall at a 14.4% Pace Through End of Decade
Based on JSI Capital Advisors’ exclusive annual survey of ILECs nationwide, at the end of 2010 there were 101.98m telco access lines in the United States. A year ago, in our 2010 industry projections, our forecast for access lines at the end of 2010 was….drumroll please…101.98m! Not bad if I do say so myself. But even as we’re patting ourselves on the back for that very accurate Year 1 estimate, we have to also admit that our predictions for the remainder of the decade as of mid-2010 now seem grossly optimistic.
We don’t buy into the Technical Advisory Committee’s expectation of just 42m lines in the U.S. by 2014, but we’ve nevertheless had to reassess our assumptions for traditional line losses over the next decade—fairly dramatically. Despite the fact that through mid-2011 access line losses appear to have moderated somewhat over the 2010 decline, there’s simply no denying the broader trend. Cord-cutting continues apace—we now estimate that wireless-only households account for at least one-third of U.S. households. By year end we predict that figure will have risen to 37%. It’s a generational shift that has been exacerbated over the past few years by the economic recession, but with the exception of very rural markets where wireless coverage may remain spotty, it’s an irreversible trend. The bottom line is that my 20-year-old son isn’t going to call his local phone company to connect a landline—ever.
He will, perhaps, agree to a VoIP voice service as part of an overall bundle which includes video and broadband service. But voice is an add-on service today, for consumers anyway. For business lines we think the access line losses will be slower than in the residential market, but in the long run the same dynamics are in play. Also, we believe certain CLECs will continue to add lines in the near-term with their highly focused campaigns for business customers. Once again, however, in the long-run the trend will be negative.
As I mentioned above, through mid-2011 the publicly traded ILECs that we track appear to have seen line losses moderate somewhat compared with 2010, and based on our own annual survey of non-public RLECs we know that for the very smallest companies line losses in 2010 were less than in 2009, averaging between 3% and 4%. Once again, there are many rural areas where wireless coverage may not be solid enough for customers to be comfortable with cutting the cord.
Based on the above thinking as well as our review of data collected by the FCC and reported by public companies, we expect the total number of ILEC access lines in the U.S. to fall by 11.3% this year, to 90.45m. Broken down, we believe total residential lines will fall 14.25% to 51.71m while business lines will decline a more modest 6.8%, to 37.74m.
Facilities-based CLECs, which we estimate had 6.6m lines at the end of 2010, are expected to grow their base by 6% this year to close with 7m lines. We believe the majority of CLEC lines are business lines and that that’s where most of the growth will be.
Longer term, we’re now projecting a compound annual growth rate (CAGR) of -16.6% for ILEC access lines through 2020, which brings the total number of access lines down to 16.5m by the end of the decade—that’s a far cry from the 52.2m that we predicted last year for 2019, but we now think that it simply isn’t reasonable to assume that the rate of decline will slow so dramatically over the next eight or nine years. In absolute terms we think the line losses go down, but as the base shrinks the percentages changes will increase. So where in 2010 more than 13.25m lines were lost, this year that figure is expected to drop to 11.53m lost lines, and in 2012 we expect another 11.3m lines to be cut. By 2020 the annual decline in access lines is expected to have fallen to less than 5m lines—but that accounts for 23% of the projected year-end 2019 total.
As we said, the residential line losses are expected to occur more quickly than business lines. CAGR for residential line losses through 2020 is forecast to be -19.9%; for business the anticipated rate of decline is -13.2%.
CLEC lines are projected to grow somewhat over the next few years before falling inevitably to larger market forces. We think the total number of facilities-based lines nationwide grows to a high of nearly 8m a few years from now before beginning to decline. By 2020 be believe there will be just less than 6.5m CLEC access lines, slightly below where they ended in 2010.
Finally, we looked at our estimates and forecasts relative to the number of households and employees nationwide. We believe roughly 48.5% of U.S. households maintained a residential phone line at the end of 2010, but by the end of 2020 our forecasts indicate that fewer than 6% of American homes will continue to have a wireline phone connection.
On the business side of the equation, our estimates indicate that there was a wired phone line for roughly 35 of every 100 U.S. employees at the end of 2010; by the end of 2020 that penetration of employees will be between 10%-11%.