Are Landlines Obsolete?

Jacob Harper |

When Hurricane Sandy hammered the east coast, it took a lot of telephone lines with it. A lot of rural residents found that telecom companies were loathe to replace them, and made residents do with wireless. For a lot of urban customers, who already rely exclusively on wireless, the loss of landlines would amount to shrug and a “so what?” Even internet, which is what urban users primarily use copper telephone wires for, increasingly looks like it might move to wireless as well. Why maintain landlines at all?

Verizon Communications Inc. (VZ) has experienced a 67 percent drop in copper landline usage since 2000. The company reported their second quarter earnings on July 18, and they ended up falling short of expectations. Of particular note for the country’s largest telecommunications company is the fact that they a significant chunk of their losses were related to their landline services.

As we move into an age where more and more people eschew landlines altogether, and rely solely on wireless, the question becomes: will landlines one day go the way of the buggy whip and fall into total obsolescence?

The problem though, is telecom companies can’t just abandon copper landlines as vestigial relics of a bygone communications era. It's the law.

How Landline Service Became Mandatory

It goes back to the days when getting telephone service to rural customers was a costly, and not always profitable venture. The government wanted to ensure that all citizens had access to telephone service regardless of geographic proximity to urban centers and mandated that the telephone company provide service. 

With the enactment of the Communications Act of 1934, phone service fell under the umbrella of a national agency: the Federal Communications Commission. The act states specifically that:

No carrier shall discontinue, reduce, or impair service to a community, or part of a community, unless and until there shall first have been obtained from the Commission a certificate that neither the present nor future public convenience and necessity will be adversely affected thereby.

In short, once a community is connected, they stay that way. Even if it's not profitable for the company to do so.

The Telecommunications Act of 1996 expanded this definition of ‘access’ to include things like high speed internet access and repealed some of the 1934 act. Pertinent to modern telecommunications companies, they are required to offer service to all customers in their coverage areas.

And unlike 1934, today the phone company is not a regulated monopoly. Bell System is long gone, but the rules that applied to that monopoly (broken up in 1984 by the Department of Justice) are still firmly in place.

Nobody wants to see rural citizens without access to phones and the internet. But with President Obama calling for national wireless service to be a top priority, will landline service remain, just because by law they can't be removed?

Can Phone Companies Stop Landline Service?

Worldwide usage of landlines is on a steep decline as more and more customers switch permanently to wireless. Large chunks of Europe and Africa have done away with stretching landlines altogether in favor of wireless. The matter for American users is not whether or not they deserve access to telecommunications, but whether or not providing landlines is still a necessity. Verizon has been losing money on maintaining traditional phone service. But their rival might have found a way around it.

AT&T Inc. (T) has bandied about something called Project Velcoity IP that would, essentially, side step this requirement. Their plan would offer service to 99 percent of the country. Of course, the one percent of the country that would go unserved are the most rural, remote customers. Oftentimes, these rural residents are poor, and landlines are their only service.

And that's the biggest problem. Until Obama's plan for a national wireless system goes through, eliminating landlines would affect the most remote and poorest customers the most. Adn so, barring a rewrite of the Communciations Act, the telecom companies will continue to provide wireline, no matter the losses.  

So it seems, even if landlines seem antiquated, and we might one day move to a wireless society, copper lines will be here for awhile. And the big telecom companies are simply going to have to deal with it.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
VZ Verizon Communications Inc. 49.81 -0.06 -0.12 10,650,716
T AT&T Inc. 38.61 -0.27 -0.69 16,102,161
GRGSF Grieg Seafood Asa Ord 9.65 0.00 0.00 0

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