Business customers are less likely to go wireless

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by Robert Burke

Hit the road, phone jack. These days, to have a land line telephone plugged into the wall is to be judged a relic from the Dark Ages. Now that’s not exactly fair, since the old copper network left from the days of Ma Bell still works pretty well. For an increasing number of consumers, though — especially younger ones — the untethered freedom of a mobile device wins out.

Consider the evidence: The number of wireless subscribers nationwide rose from 109.5 million in 2000 to 233 million in late 2006, according to a recent Federal Communications Commission report. During the same period, the number of land lines dropped about 5 percent a year, to 140 million.

But, what about business customers? They are not abandoning their land lines nearly as fast, says Brian Washburn, research director of telecom services for the Washington, D.C.-based consulting firm Current Analysis. “The business sector has been pretty resilient,” he says. Still, Washburn estimates that the number of business customers nationwide is dropping about 2 percent annually. “You hear about consumers going totally wireless. It doesn’t happen so much in the business sector,” he says. “[The phone companies] may be losing those customers, but not necessarily to wireless.”

Washburn says small and medium-size businesses that don’t have complex telecommunications packages are sticking with land lines for the reliability. “There’s still a need for that guaranteed crystal-clear sound that you get out of a wire-line phone,” he says. Plus, cell phone service can be knocked out by system troubles, dead spots or even bad weather, but a good old land line still works even if the power goes out.

Selling bundled services
Big telecoms such as Verizon and AT&T are going after their own wire-line customers, too, residential and business, by selling them bundled services — high-speed Internet access, digital television and wire-line voice services thrown in as well. “They have started to bundle wire-line with wireless, from the big [customers] all the way down to the single-line business customer,” Washburn says. “That way they can preserve the profit margin of the traditional wire-line business. They can get the small one- or two-line shop to buy DSL and traditional land line at a very attractive price.”

Verizon lost nearly 11 percent of its residential line customers in the 12 months ending in March, dropping to just over 24 million nationwide. (For competitive reasons the telecom companies won’t release state figures.) Verizon is trying to make up the lost revenue by upgrading its fiber network and pushing bundled services. Business customers can get digital TV, broadband Internet, online backup and so on, and voice services are just tossed into the package.

Mike McLaughlin, Verizon’s director of small-business marketing, says there are plenty of small businesses in the market with just a single phone line, and they don’t feel a need to change. “[They say] ‘My business has been in the family, I’m running it, everything’s good.’ We reach out to those folks as well to try to get them” to upgrade, he says. Overall, though, Verizon’s wire-line total operating revenues dropped 1.8 percent to $12.1 billion in the second quarter of 2008, compared with the same quarter a year before.

Competition from Comcast
Waynesboro-based Ntelos is seeing the same drop in local wire-line customers, in part because of competition for voice customers from cable provider Comcast, which moved into its Waynesboro market in May. Ntelos lost about 4.3 percent of its wire-line customers in the 12 months ending in June. “For the first time we’ve had competition for local telephone service. That’s been one of those you-know-it’s-coming kinds of things. All you can do is provide the very best customer service you can and hope they see the value of staying with the incumbent,” says company spokesman Mike Minnis.

Those advantages, he says, include 911 service and customer service representatives who actually live in the area. Ntelos is bundling services, too, offering the local and long-distance wire-line services as well as high-speed Internet access, and HDTV in those markets where they’ve laid fiber to the home. Minnis says Ntelos can keep up with bigger providers in offering broadband and data services to businesses. “The key is the technology and applications being able to keep up with what people are willing to pay for,” he says.

Comcast’s inroads into Ntelos turf is driven by its Digital Voice Service, which was launched in May 2005. Nationwide, in the second quarter of this year Comcast added 555,000 customers, bringing its total customer count to 5.6 million. Through June, phone revenues year-to-year were up 57 percent for Comcast, to $1.2 billion. Cathy Avgiris, senior vice president and general manager of Comcast Voice Services, says the company is picking up a lot of voice customers from its base of cable subscribers. Again, the companies won’t give out Virginia figures. With its cable customers Comcast is merging the voice service and adding features, such as letting you see caller ID information on your TV screen, your phone and your computer. “So no matter where you are you’ll be able to get that information,” she says. The rollout of this service has begun, but she couldn’t say when or where it might come to Virginia.

Avgiris says Comcast focused first on residential voice customers and is now looking more for small businesses. “Our approach has been really to start with the small companies, eight lines or less. They’re generally right next to our [network] footprint so it’s an easy extension for us.” Comcast didn’t have a commercial voice product until this year, she says, but it’s now packaging that with Internet and digital TV just like its competitors. “We’re building our expertise [with] small businesses, and single office and home offices,” she says.

The land lines that depend on copper networks are going to keep shrinking in number, obviously, but replacing them is not as simple as merely choosing a different provider.
The phone companies want businesses to buy more than just a dial tone — a lot more. It’s like going to the store to replace an old phone and walking out with a bunch of stuff you didn’t know you needed. “As a business you’ve got to keep up with the demands of technology and the habits of whoever your customer is,” says Minnis of Ntelos. “If you’re a business, the question is, ‘Can I get a return on this investment?’”


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