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Your Phone Company is Doomed

700,000 Americans abandon their traditional landline phones every month, according to the Economist, and roughly 25% of all Americans are “cell phone only.”

We’ve written in these pages before about how technological and demographic changes are fundamentally altering sleepy old industries like newspapers and college text books.  The revolution in telephony, however, is a much bigger deal involving much larger companies and a lot more money.

Like many revolutions, this one is being led by the young.  The chart below makes a vivid point: younger Americans in their 20s and 30s, who generally tend to be highly mobile (bordering on nomadic) have shunned the traditional home phone en masse, opting to use their mobile phones exclusively. In 2008, more than 40% of the “just out of college” age cohort chose not to bother with a home line, and the number has risen every year.

It’s not hard to understand why.  When you move every 6-months, transferring your home phone service can be a cumbersome drag in an era in which Americans are used to instant service.   It’s also uneconomical for a young single person to pay for both home and mobile service, especially considering that young people spend comparatively little time at home.  (Plus, an iPhone is so much cooler than a home phone, dude.)

A home phone is still economical for a large family or for people who spend a lot of time making local calls.  But for the most part, people keep their phone numbers more out of inertia than anything else.  If you’ve lived in the same house for ten years, paying for phone service the entire time, you’re not likely to suddenly cancel your service (though given the new trend in American frugality, this may too be changing.  We would not be surprised to see that the pace of service cancellations accelerated in 2009 once the data is released.)

But what happens when you move?  Once the inertia of the status quo is broken, is it worth the effort and money to set up service at your new address?

For a lot of people, the answer would be no.  Your author went “cell phone only”  as far back as 2003.  We grew accustomed to relying on a mobile phone while studying at the London School of Economics, and it never even occurred to us to reestablish home service once we returned to the US.   The only people that ever called us at home were telemarketers, anyway.   More than six years later, our household depends on two mobiles and a Skype account we use for making international calls.   (Skype, by the way, can more or less completely replace your home phone for a whopping price tag of $60 per year, which includes unlimited local and national long distance calls and your own traditional phone number.  Not a bad deal!)

There are a few “legacy” issues that convince some people to maintain a landline.   You don’t want to be in a situation where you can’t call 911 in the event of an emergency because your cell phone battery is dead or your signal is low (also, the call tracing features of 911 do not currently work on mobile phones), and many home security systems depend on a landline to call for help.  We would see these as minor obstacles that are likely to be quickly overcome.

These changes underway have caught some people by surprise.   For example, political pollsters generally only call landlines.  The Economist, reporting findings by Pew Research, writes that then-Senator Barack Obama’s margin over Senator John McCain was understated by 2-3% in most polls.  Obama’s popularity among younger voters was not fully reflected because they were not reachable by phone!

The death of the landline may also (thankfully) mean the death of telemarketing.  Since Americans cell phone users are charged for calls they receive, it is illegal for marketers to call them.  Were the marketers to reimburse cell phone users for the minutes used, the business model would be far less economical.

At any rate, falling prices for mobile telephony and the rise of a large, new tech-savvy generation — the Echo Boomers — are bringing about yet another of many changes to our economy and way of life.   A baby born today will probably grow up to view the fixed-line telephone as a quaint artifact from the past, the way we view those old timey phones where the mouthpiece and earpiece are two separate pieces (you know, the ones where you have to call the operator and have her direct your call, like in the black and white TV shows from the 1950s).

Get ready.  More change is coming.

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy