Will Femtocells Accelerate Wireless Substitution?

Home Landlines Are Being Increasingly Marginalized

Is the era of the home phone line coming to a close? If third-quarter results among the top operators are any indication, wireless continues to take on wireline voice in the home as more people cancel landline service and operators add wireless subscribers. But here’s the new wrinkle: the femtocell conversation is accelerating at a more rapid pace than once thought possible. And the improved indoor coverage these mini base stations offer might just be the catalyst that wireless substitution needs to move into the mainstream.

OK, sure, great-grandma probably won’t shut off the copper line she’s had since the day of Ma Bell. Some simply like the redundancy or the reliability a home landline represents. So far, only about 17 percent of households in the United States (20-plus million customers) have ditched landline for wireless, according to Nielsen Media, which predicts that 20 percent will be wireless-only by the end of the year. That’s a percentage made up primarily of college kids, tech heads, single road warriors and people who move a lot.

But a quick look at telco financials shows the tide is turning for more and more of us. AT&T Inc. (T), for instance, reported its third-quarter profits were up slightly, 5.5 percent — all thanks to success in wireless. The No. 1 domestic operator announced that the untethered sector, which accounts for about 40 percent of AT&T's total revenue, brought in a handy 21 percent profit and 2 million new net wireless subscribers.

That’s a contrast to the 990,000 home wireline phone lines AT&T lost in the third quarter. Plus, it should be considered, that its overall wireline business declined 2.2 percent. Put in perspective, even though broadband sales were up for AT&T, that fact wasn’t enough to fully make up for the home landline losses.

The story is similar for Verizon Communications Inc. (VZ). Verizon added 1.5 million new mobile subscribers in the third quarter of 2008, which along with its FiOS fiber service accounted for a 31 percent increase in earnings. Meanwhile, its traditional phone line accounts fell a full 12 percent year over year.

Both LECs face competition in the home from wireless carriers T-Mobile USA and Sprint-Nextel Corp. (S), which have tried to poach home users by solving the notorious problem of poor indoor wireless coverage, a factor that is widely considered as one of the only things holding most subscribers back from going all-wireless. T-Mobile is marketing unlimited home phone service, Hotspot@Home, by offering dual-mode cell phones and leveraging Wi-Fi access points that offer POTS-level voice quality and cheaper tariffs inside the home. Sprint, meanwhile, has launched its Airave femtocell service. The femtocell CPE plugs into existing cable, DSL or fiber broadband connections to provide copper-like wireless voice quality and broadband wireless data rates within the home calling area.

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