AT&T Unity, or a desperate cry to save wireline

Earlier this morning, AT&T announced its Unity plan, a nifty marketing ploy that would allow big-spending AT&T wireless and wireline customers to call each other for free. Beyond the headlines, the announcement really is a quick justification of Ed Whitacre’s merge and grow strategy.

building_ext.jpgMoreover, it is also a desperate cry to find new ways to extend the life of wireline service that is being seriously cannibalized by wireless and other broadband-based product offerings.

Over past three years, the quarterly financials of all phone companies, not just SBC and BellSouth, have had the same monotonous quality, a repetitive drumbeat of declining access lines. The routineness of these losses has made us a little numb, and perhaps oblivious to the magnitude of the line losses.

So here is a reminder. In 2001, there were a total of 152 million retail lines, and that number is estimated to be down to 125.9 million at the end of 2006.

In other words, the Bells are losing their grip on their core business: the retail customer. UBS Research shows that by the end of 2006, the households served by Baby Bells (or their aggregated new parents) would drop to 68.9 million. By 2010, the spreadsheet of phone company horrors says that the Bells will serve 49.2 million homes. In other words, 41.54 percent of the homes served!

The problem of wireline losses is pretty acute at the new “at&t” which has seen its total retail lines decrease from 79.25 million in 2001 to 61 million – roughly 23 percent decline or the loss of approximately one in four retail lines. The same numbers hold true for Verizon and Qwest – both seeing about 26 percent retail line loss for the same time frame.

Where have these voices gone? They have gone mobile or switched to cable or even VoIP. Given that AT&T owns Cingular and Verizon has a firm grip on Verizon Wireless, they should not be in such a bad shape. However, that is not enough.

In his op-ed, Daniel Berninger pointed out that there has been a 40 percent decline in wireline minutes since 2001, according to FCC data. If you add all the wireless minutes to the total talk time, the total minutes are down 15 percent over past five years. “This means we either communicate less than five years ago or the Internet (e.g. email, IM, VoIP) is taking traffic away from the PSTN,” he points out.

Of course we all know mobile users are fickle and have an option to switch, an option that has eluded the landline customers until very recently. And there lies the Catch-22. If the carriers lose the grip on the wireline, then the broadband and video plans come to naught.

AT&T’s Unity plan is a bandaid solution that can’t really stop the bleeding. Sure it will help the company retain (or even attract) some customers to its rapidly declining wireline business, where it still makes a lot of money, and extract more out of its increasingly redundant copper lines. How long can this game really continue? That is the big question.

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