Stranded Telco Assets are Becoming Untenable

By Gary Kim October 09, 2013

About 95 percent of U.S. households no longer rely solely on the traditional home telephone to stay connected, according to Dr. Anna-Maria Kovacs, visiting senior policy scholar at Georgetown University’s Center for Business and Public Policy.

The changes sometimes escape notice: telco fixed line voice accounts have decreased by 66 percent since 1999. That bears repeating: in a bit more than a decade, fixed network telcos have lost most of the consumer voice business to other alternatives.

That makes the fixed network voice business increasingly untenable. That also bears repeating. As the number of customers served declines, cost per customer climbs.

If network operators are efficient, and 50 percent of costs are variable, cost per subscriber at 30 percent penetration is more than twice what it was at close to ubiquitous penetration.

If only 20 percent of the cost is variable, then cost per subscriber is nearly 300 percent higher at 30 percent penetration.

At 15 percent voice penetration, the level AT&T is approaching in some of its areas, cost per subscriber grows 500 percent for a network that has 20 percent variable cost and grows by 400 percent even for a network that has 50 percent variable cost.

We sometimes get used to comparing telco statistics “fixed network to fixed network,” which is reasonable as far as it goes, but misses the impact of consumer behavior across all networks, fixed and mobile.

In fact, at the end of 2012, telcos served just 34 percent of consumer voice accounts, 14 percent of broadband access and 10 percent of video customers (when evaluating and including all mobile and fixed network accounts).

A study conducted by Kovacs finds that at year-end 2012, 38 percent of U.S. residents relied on wireless exclusively, 4 percent used VoIP exclusively and only 5 percent relied on traditional plain-old-telephony (POTS) exclusively, for their voice services.

Fully 53 percent relied on wireless in combination with either POTS (29 percent) or VoIP (24 percent).

The study was produced as part of an effort to promote a change of regulatory emphasis, of course. But “stranded assets” have been a key danger for fixed network providers under highly-competitive conditions, and the study points out just how challenging stranded assets now are becoming.

Edited by Alisen Downey

Contributing Editor

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