Possible Increase in Wireless Substitution on the Way

By Bob Titsch

If survey respondents act the way they say they might, we could see an acceleration of wireline voice substitution during the current recession. Sprint sponsored a survey that found 32 percent of respondents are likely to eliminate their landline service and rely solely on a mobile phone in order to save money. About 18 percent of respondents already do not have landline phone service at their home.

When asked why they would give up their landline phone, 76 percent said they would disconnect in order to save money.

The findings are significant as all service providers are watching for signs of churn behavior, service downgrades and other actions consumers could take if they really are interested in saving money during the recession.

In fact, what makes wired voice services a different sort of service in the current recession is that it is a category in a state of secular decline, where the other key services either are in growth mode or have established themselves as “necessities.”

That status arguably applies to mobile phone service, Internet access and multi-channel video services. In fact, historical data on subscribership to those services suggests there will be a dip in adoption of advanced features, but no decline in take rates for the services themselves.

In the mobile space, that likely means a slower rate of phone upgrades or replacements and a slowdown in uptake of advanced services. In the multi-channel video space, it likely will be a slowdown in uptake for advanced video services, including digital video recorder or higher-priced video-on-demand, premium cable or HDTV tiers.

In the broadband access space, the likely result will be a slowdown in bandwidth upgrades. None of those developments should result in actual declines in subscribership overall, though it is conceivable there might be market share shifts. Indeed, that is a secular trend, much like landline voice abandonment.

As telcos continue to add more homes that can be sold multi-channel video, cable companies are likely to continue losing some subscribers. The same trend likely will continue on the satellite video front, where some percentage of cable subscribers defect to satellite services.

The two most ubiquitous products of the information era—home computers and cell phones—are currently situated in the middle of the pack on a scale of “necessities,” according to researchers at the Pew Research Center.

Computers are deemed a necessity by 51 percent of the adult public, and mobile phones are seen as necessities by 49 percent of respondents. But both of these products are making a swift climb up the necessity scale, Pew researchers say.

A decade ago, just 26 percent of adults considered the home computer a necessity, and back in 1983, when computers were still a novelty, just four percent felt that way.

Mobile phones were still so exotic in 1996 that they weren’t even included in the Pew Center’s earlier research on the subject. The same holds for high-speed Internet access; it didn’t exist as a consumer service in 1996, but it’s now considered a necessity by 29 percent of the adult public.

Still, there is a secular shift occurring that the recession might simply accelerate. Some 36 percent of respondents say “a mobile phone is the only phone they will ever need.”

On the marketing front, Sprint’s survey shows the importance of “family plans” as a driver of additional account adoption. Almost three-quarters (72 percent) of respondents are likely to use family plans for mobile phones in order to save money. About 67 percent of mobile phone owners have more than one mobile phone in their family or household already, and of them, 78 percent have combined into a family plan or would consider it to save money.

In March 2006 perhaps 41 percent of U.S. adult mobile phone users were on a family plan, and 97 percent of these consumers say they never had a family member leave their plan, according to Harris Interactive.

The survey shows that about three-quarters (71 percent) of family plans primarily consist of two members, spouses or partners, but the network of family plan users extends far beyond couples.

“Wireless consumers clearly love family plans because they deliver great value,” said Joe Porus, Harris Interactive VP. “Wireless service providers offer such plans to build subscriber loyalty and reduce churn.”

About 40 percent of respondents use their mobile phone for more than voice conversations, referring to the use of data services such as email, text messaging, web browsing, picture sharing, GPS driving directions, TV watching or music listening.

In fact, the only surprise here is that only 40 percent use any data services, given the popularity of text messaging.

The Sprint Survey on Mobile Value found that 54 percent would switch their mobile phone carrier if they saved $300 or less a year (as little as $25 a month). Another 30 percent would switch for savings between $400 and $600 ($33 to $50 a month), and still another 26 percent would switch for savings between $600 and $1,000 ($50 to $83 a month)..

The survey also found that 43 percent of respondents make more than half of their calls from their mobile phone.

The Sprint Survey on Mobile Value is based on an online survey among a nationwide sample of U.S. adults. Of the 473 participants, 29 percent were from the Midwest, 27 percent from the South, 23 percent from the Northeast and 21 percent from the West. Of the respondents, 56 percent were female and 44 percent were male. The margin of error for the survey is plus or minus 4.51 percent.

There is a mix of factors that impact a purchasing decision, but for those in a family plan, coverage/quality of service (32 percent) is almost as important as the price/monthly fee (41 percent). Other factors like the phones available (14 percent) and customer service (13 percent) play a slightly smaller role.

In many ways, family plans have to be deemed one of the most-significant marketing innovations in the wireless space, next to the “Digital One Rate” plan by AT&T Wireless that lead to the creation of industry-wide “a minute is a minute” pricing. IP