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After 2000, it became increasingly clear that mobile phones were the preferred way most people in the United States and elsewhere wanted to use voice services, as shown by the steady growth of mobile phone use, and the simultaneous abandonment of fixed voice services. That has created a major “stranded assets”problem, as networks covering large percentages of the potential buyer base actually generate revenue from half, or far less than half, of potential customer sites.

The new issue is the degree to which consumer demand for internet access might begin to whittle away at fixed network internet access, especially on telco fixed networks, which have steadily lost market share to cable TV alternatives.

Unlimited mobile data plans already largely eliminate the advantage fixed internet access services have had in the “cost per megabyte or cost per gigabyte” area. Further networks (advanced 4G and 5G) will largely eliminate the speed advantage fixed networks have had, as well.

Stranded assets are a growing business model issue for large tier-one service providers. Consider that, between 2012 and 2015, U.S. fixed network switched voice connections dropped from 96 million to 64.6 million, a decline of 33 percent in just three years.

Of course, some additional lines were supplied by telcos, using voice over internet protocol platforms, so the extent of the voice services loss is less than appears, looking only at switched line loss.

The point is that nearly half of the total voice market now is supplied by attacking service providers, not telcos.

In other words, a fixed network built to serve “everyone” is used by about half of homes passed. That means the cost to serve each customer is twice as much as it used to be, as customers wind up paying for network investment that is stranded, and does not generate revenue.

Assume there are about 126 million U.S. households, about 98 percent of which are passed by a telco network. That implies some 123.5 million locations, of which perhaps 53 percent buy voice service.

That means the whole telco voice network derives revenue from about 65 million homes, or perhaps 52 percent of locations. And the problem seems to be getting worse, as consumers seem to be buying fewer telco fixed voice lines every year. For the market as a whole, that is offset by consumers buying cable TV fixed voice services, but even cable operators now are losing voice accounts.

Matters are worse for telcos in the internet access source. According to Leichtman Research, of 123.5 million U.S. households, telcos sell internet access to about 34.9 million homes, or about 28 percent of locations. So the long term issue is whether a fixed network selling services to such a smallish number of homes passed can survive.

Telcos have the same problem with video customers, as telco fixed networks represent about 10 million accounts, or some eight percent of accounts.

This blog was originally published on Spectrum Futures

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