The Real Reason Verizon Is Backing Away From Landlines

ivan_seidenberg_fVerizon (s vz) CEO Ivan Seidenberg yesterday said the giant carrier is giving up on the landline and will be reorganized to reflect those changes. He cited the inevitable decline in landline subscriptions and said that video is the core product in this new era of telecommunications (notice he didn’t say data, because that would relegate his infrastructure to being a bunch of dumb pipes). What he didn’t say was that as the landline business dies, it’s expensive to maintain, nor did he say that the 17.2 million remaining copper-based phone line subscribers might find themselves in trouble.

As I said in an earlier post, as the number of landline subscribers decreases, the carriers’ cost to service those aging copper lines is increasing. Based on data from FCC reports, AT&T (s T), Verizon and Qwest (s Q) spent $52 on maintenance per access line in 2007, and $43 per access line in 2003. Given that dynamic, and the fact that the wireless business is on a tear, Seidenberg obviously felt safe distancing Verizon from copper voice. In its most recent quarter, Verizon earned operating margins of 4.8 percent on its wireline business (which includes FiOS and landlines), and 28.8 percent on its wireless business. Revenue was split with $11.48 billion coming from its landline businesses and $15.4 billion from wireless.

But while investors may cheer this news, the folks who depend on landlines — the poor, security conscious, or those who simply believe that the call quality is better on copper lines — will suffer. A few months ago I mocked an AT&T advertisement targeted at just those people, but many commenters defended their landlines. Heck, I even have one.

So what happens to those people — those 17.2 million subscribers — now that Verizon will focus on wireless and video delivered via FiOS? It is continuing to dump its rural copper networks by selling them to smaller carriers. When it comes to copper Internet access lines, Verizon is accused of halting investments in DSL in areas where it has FiOS.  Should copper landline subscribers expect the same sort of treatment, since Verizon is giving up on the biz? On that same note, Verizon still has 6 million DSL subscribers, about 20 percent of which aren’t on the schedule to get FiOS service. What does Seidenberg’s announcement means for them?

Seidenberg is not the first to conclude that landlines are no longer the key business for a carrier. Back in April, AT&T’s CEO, Randall Stephenson said that the landline business was dying and the big money was in wireless. He also talked up how his company was changing to reflect the current realities.