Landline Phones, Research Paper Example

The U.S. Census Bureau reported in 2009 that the number of households with cellphone users increased from 36 percent to 71 percent between 1998 and 2005. The rise in the popularity of cell phones was even greater in households 29 years or younger whose ownership rate went from being 35 percent in 1998 to 81 percent in 2005. The ownership of landline phones by the same group declined from 93 percent to 71 percent during the same period. The landline phone ownership rate in the general population declined more slowly, from 96 percent in 1998 to 91 percent in 2005. A particular fact to note in the U.S. Census report was the unusually high ownership rate of landline phones among the group 65 years or older in 2005 at 98 percent (United States Census Bureau, 2009). It is clear from the report that the landline phones are being gradually replaced by cell phones even though they continue to enjoy varying degrees of popularity among different demographic groups. Landline phones have been a commodity product for decades now so historically they have been embraced by all age groups. But due to different technological, social, and economic factors, it is becoming obsolete among different demographic groups at varying pace.

The decline of landline phones has not been occurring due to a single factor but instead several technological, social, and economic factors are at play. First of all, due to high ownership rates of cell phones, many users consider it a waste of money to have both landline phones and cell phones. There is nothing that cell phones can’t do what landline phones do and moreover, while cell phones can be accessed anywhere, landline phones are limited by physical location constraints. The economic reason is even stronger among low-income groups and the U.S. states that have been witnessing the sharpest decline in landline phones ownership are also the ones with high proportion of low-income households such as Arkansas, Mississippi, Kansas, and North Dakota etc. Another reason is that many young people get cell phones as their first communication technology and become used to it so they don’t see much need for an extra phone service in the form of landline phones (Snider, 2011). In addition, the communication industry is highly competitive and the recent failure of AT&T to acquire T-Mobile tells us several things about the nature of the telecommunication industry. First of all, the margins have been falling due to the intensity of the competition which prompted AT&T to offer $39 billion for T-Mobile in order to reduce competition as well as increase profitability. The failure of the deal due to the intervention of Federal Communications Commission (FCC) and the Department of Justice (Goldman, 2011) also signals government’s intent to maintain competition in order to protect consumers’ interests.

The landline phones are also becoming obsolete due to technological advancements in cell phones which have significantly improved their performance as well as call quality. In addition, the features in cell phones, especially smart phones far outnumber those in landline phones. The cell phones have also become lot more comfortable and many entry-level phones can be had for free. Telecommunications companies are now even handing down free entry-level smart phones with annual contracts. Telecommunications companies are also spending more on upgrading their wireless infrastructure because they realize that landline phones are not only in decline but also contribute less to the companies’ bottom line. Verizon’s landline revenue has fallen by 19 percent since 2007 and AT&T’s by 16.5 percent during the same period (New Mexico Business Weekly, 2012).

In order for landline phones to extend their life cycle or develop new markets, the focus should be on creating a point of differentiation from cell phones or incorporating new technology that responds to emerging trends and customer preferences. Another option is to seek international markets where landline phones have a greater potential to enjoy growth due to the particular characteristics of the targeted market. One recommended strategy is to incorporate video calling and other innovative value added features into landline phones. Video calling is becoming popular and we now see the feature not only in popular software such as Skype but even portable computing gadgets such as smart phones and tablet devices. Moreover, some of the most popular websites such as Facebook have also added video communication features to their sites. Even though smart phones and tablet devices now have video calling features, landline phones may have advantage because their size may allow more advanced video calling technologies to be incorporated into the devices. In addition, landline phones may also appeal to population segments that desire simplicity or are not technologically savvy. The simplicity of video calling through landline phones may also become a strong differentiation point against smart phones and other mobile gadgets.

Another strategy that could be used by landline phone companies is to adopt VoIP technology. Landline phones could increase their economical appeal by offering flat-rate plans that include international calls as well. Internet is now a commodity and almost every U.S. household has internet connectivity. While most cell phones do offer flat rates on calls made within the U.S., they charge higher for international calls. In addition, unlimited plans on smart phones often cost above $50. This option requires smartphone companies to evolve by embracing a new technology as well as offer better economics to the consumers.

The third strategy is to seek international markets where there is lot of potential for growth and where the emerging social and demographic trends mean the market for landline phones will remain strong for years or even few decades to come. The marketers could focus on certain market characteristics to improve the chances of success. One market feature to focus upon is a large population of elderly people. Even the U.S. case demonstrates that elderly people are more loyal to landline phones which could be for several reasons. First of all, they grew up with landline phones so have become used to it. Second, they have not embraced technology with the same passion or at the same pace as young people many of whom have grown up with modern technology. Another market characteristic the marketers may focus upon are the labor mobility trends. Many developing nations or emerging economies have traditionally enjoyed strong joint family systems. But the economic progress has been disrupting these joint family systems because many young people are moving to other cities with brighter employment prospects. This trend is quite visible in two of the fastest growing economies such as India and China. Landline phones usually offer unlimited plans at cheaper rates than cell phones, thus, landline phones may appeal to the elderly population segments who desire continuous connectivity with their children and extended family members in other cities.

The best foreign country to market landline phones may be China. In 2009, China had approximately 294.393 million landline phone lines in use which was almost double the figure in the U.S., the country with the second highest lines. U.S. had approximately 151 million lines in use. In comparison, Brazil and India had only approximately 42.1 million and 35.1 million lines in use during the same period (Central Intelligence Agency (CIA)). Thus, China not only greatly outpaces other emerging nations but certain social factors also make it a lot more appealing than other emerging economies. First of all, China has one-child policy which means that over time parents and grandparents will desire even more connectivity with the only young member of the family. China already has an extensive infrastructure to support landline phones, thus, companies will not have to wait for the demand to significantly build up.

The marketers should specifically target the elderly population in China who are more likely to buy technologically simple products and remain consumers for longer periods of time. Chinese are also known to be frugal and landline phones will appeal to them due to lower costs and better values. China has a huge population so landline phones marketers could take advantage of the economies of scale by entering into long-term contracts with local communication services providers. The landline phone marketers could also add values to the products such as video calling which may have a huge appeal to families wanting to see their loved ones in other cities on regular basis without having the need to travel frequently. The video calling feature may even allow marketers to target local businesses especially small and medium-sized who do not have the budget to invest in advanced information systems yet earn a significant portion of their revenues through cross-border dealings. The marketers could also significantly improve cordless landline phones technology so that the customers could use them just like cell phones anywhere within the boundaries of their residences, without worrying about costs or plan limitations.

Landline phones are becoming obsolete in the U.S. because cell phones have become quite perfect substitutes and the economics of cell phones has also been improving over time. In addition, cell phones have more and better features and they also appeal to those who have embraced modern technologies or mostly grew up with it. Thus, the challenge for landline phones marketers is to either adapt the product to emerging trends and consumers’ preferences or target markets that are still in infancy and offer huge growth and long-term profitability potential.

References

Central Intelligence Agency (CIA). (n.d.). Country Comparison: Telephones – Main Lines in Use. Retrieved July 23, 2012, from https://www.cia.gov/library/publications/the-world-factbook/rankorder/2150rank.html?countryName=China&countryCode=ch&regionCode=eas&rank=1#ch

Goldman, D. (2011, December 19). AT&T kills $39 billion bid for T-Mobile. Retrieved July 23, 2012, from http://money.cnn.com/2011/12/19/technology/att_tmobile_dead/index.htm

New Mexico Business Weekly. (2012, April 11). AT&T, Verizon landline revenue continues to shrink. Retrieved July 23, 2012, from http://www.bizjournals.com/albuquerque/news/2012/04/11/att-verizon-landline-revenue.html

Snider, M. (2011, April 21). More people ditching home phone for mobile. Retrieved July 23, 2012, from http://www.usatoday.com/tech/news/2011-04-20-cellphone-study.htm

United States Census Bureau. (2009, November 19). Homes With Cell Phones Nearly Double in First Half of Decade. Retrieved July 23, 2012, from http://www.census.gov/newsroom/releases/archives/income_wealth/cb09-174.html