Telecom Patricide

Bob Cringely writes that “the greatest threat to the old landline phone company now comes from mobile phones. And ironically, many of those mobile phone companies are owned by the same landline monopoly they appear to be trying to kill.”

It wasn’t supposed to be this way. When mobile phones came to America, they were expensive to buy and use. I remember paying more than $1,000 for a car phone. The analog phone system allowed a maximum of 660 simultaneous users per cell tower, which means the typical $500,000 capital investment had to be amortized over at most a few thousand customers. No wonder airtime was so expensive. It had to be just to make the numbers work.

But eventually something happened. Capital costs fell, as they tend to do for any electronic devices that are produced in large numbers. Competitors appeared, driving down per-minute costs. Digital services and smart antennas allowed an order of magnitude increase in users per cell. And in response to these changes, the number of people using mobile phones exploded. Today, there are 140 million in the U.S. alone, spending an average of $44 per month.

All of which was wonderful news for the landline phone companies right up until the number of phone lines in America started to decrease after a century of growth. Three things led to this decline in total phone lines, which began around 2000: 1) DSL and cable modems led to fewer people ordering second phone lines just for dial-up web surfing, 2) e-mail and file attachments idled so many fax machines that people and businesses started to abandon dedicated fax lines, and 3) young people replaced their hard-wired phones with mobile models that reflected their nomadic lifestyles.

But if you owned a house, you still needed a regular phone line, right? Wrong.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.