Cutting the Cord: 25% and increasing

October 27, 2008 at 1:43 am | Posted in Uncategorized | Leave a comment
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T-Mobile is definitely onto something here, as nearly all (97%) @Home customers who had traditional, landline service have cut the cord since adopting T-Mobile @Home [in test markets, as reported in Network World]. @Home certainly has hit an excellent target, since 76 percent of an average person’s “awake hours” are indoors, and of that time, 61% is spent in the home vs. a separate building [Bureau of Labor Statistics, quoted in an excellent FierceWireless article]. That works out to 46% of time spent at home (61% of the 76% of time indoors, fortunately there was no reporting on the total amount of time specifically spent on the couch). Similarly, Yankee Group estimates that 32% of wireless usage occurs within the home.

Cutting The Cord Is Catching On

25% of U.S. households (over 20 Million) have already cut the cord (Editor: latest update 3Q2009), and the trend may be accelerated in the economic downturn. Why? Cost savings (as epitomized by @Home). Few people that have used a mobile phone wish to give it up, whereas many have wireline service that they can turn off. Evidence of this acceleration from wireline to wireless can be seen in the increasing rate that customers are dropping service, as reported by wireline service providers (in the U.S.). Each year, an additional 4% of subscribers cut the cord and drop their fixed service for wireless.

Increasingly, wireline providers are reporting record losses of fixed lines: the loss of fixed lines is definitely getting worse. Verizon reported 12% access line loss, having lost 2.9 Million fixed lines over the last year, and that rate is accelerating. The rate of lost lines has modestly increased from 4 to 7% in the last five years [Morgan Stanley, CITI “Ultra Broadband” conference], so the recent losses are double to triple the previous rate. Surprisingly, mobile operators lose subscribers at this rate as well … but they bring in more than they lose; the wireline operators are experiencing net loss of subscribers. And you certainly can’t lose a net 10% of your subscribers for long before you have none left. In the long run, this rate of loss will slow, as the holdout wireline subscribers maintain their fixed lines; only after the Baby Boomers have all expired will the wireline subscriptions finally plummet to near zero. Of course, this has been anticipated, and is the reason that fixed operators have invested in wireless to balance the loss and grow in the mobile space.

Fixed to Mobile … and some Cable
Most of these subscribers are dropping their fixed lines and maintaining wireless, while some are simply switching to attractive (read: lower-cost) Cable bundles. But the numbers show that wireless is getting the lion’s share. (Example: While Verizon has lost 2.9 Million fixed lines, they have added twice that number of wireless subscribers in the same period).

Many wireless-only subscribers have never subscribed to landline service, of course. The set of all-wireless subscribers is also growing from young subscribers adopting wireless as their first and only telephone service. It’s inaccurate to call these subscribers “cord-cutters,” since they never had a cord to cut. My daughter has never had a fixed phone subscription and never will.

Growth of Wireless-Only Households, U.S.

Growth of Wireless-Only Households, U.S.

Significant Cost Savings

Cord-cutters save over $30/month by eliminating their wireline service fee, even though they talk more on their mobile phone (vs. mobile subscribers with a fixed service). It may be surprising that one can achieve cost savings by moving completely to wireless, but this is absolutely possible, and a recent Nielsen study, “Call My Cell,” supports this finding.

“In a tightening economy every dollar counts, and consumers are more and more comfortable with the idea of ditching their landline connection,” Alison LeBreton, vice president of client services, Nielsen Mobile. [Nielson]

“Taste Great, Less filling.” T-Mobile’s @Home service lets you cut the cord while retaining all of the major wireline features, including wireline phones, unlimited LD, voice mail, etc. (“Tastes great!”) AND save the wireline service fees (“Less filling!”). The average household is saving $360 per year just by using @Home (since the average household spends $40/month for landline service). The Nielsen study found a similar level of savings among cord-cutters as a whole ($33/month). @Home’s plan is especially attractive to people with landline service today, since it lets you cut out the fixed provider fees while maintaining all of the benefits (all of your landline services, with all-you-can-eat calling and Long Distance).

Which Users Cut The Cord?

Some key characteristics of U.S. subscribers that are cutting the cord (that Nielson found) include:

  • Moving or changing jobs as catalyst
    A major life event is often a catylyst to cutting the cord: 31% of cord cutters moved, 22% changed jobs, 10% became a full-time student. It appears that when you move and temporarily disconnect your fixed service, you realize that you can live without it.
  • Higher wireless use, yet Cost Savings
    Surprisingly, households that cut the cord use their mobile phones more than their landline peers (45% more per phone), but still save an average $33 per month.
  • Lower income
    U.S. “cord cutters” tend to have slightly lower income levels (59% have household incomes of $40,000 or less). This is consistent with the focus on cast savings.
  • Smaller households
    Households with just
    one or two residents are more likely to cut the cord than larger households. This is understandable, since it’s easier to find a solution that serves fewer people with fewer requirements.

Ten percent of current landline users have tried to cut the cord, but have reinstated landline service. “Nielsen found that needing a landline for other services (satellite TV, pay-per-view, etc.) is the primary reason people mend the cord.” [Ad Week article].

Read the complete Nielsen findings in their complete White Paper: call-my-cell-wireless-substitution-nielson-10-2008

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