Phone giants fight to keep subscribers

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With millions of people snapping up the iPhone, AT&T, the exclusive carrier for the popular phone, should be quite pleased with the stream of revenue it can expect from customers. But AT&T, the biggest telecommunications company in the US, has a problem: analysts say consumers are dropping traditional landlines faster than expected. The company still gets 32% of its revenue from its landline business.

AT&T is not the only company facing a changing environment in the communications business. All of the major telecommunications companies—AT&T, Verizon and Sprint Nextel—are figuring out how to make more money from customers as they spend more time sending text messages or browsing the Web on their wireless phones, rather than talking.

At the same time, as the American cell phone market gets saturated—nearly 85% of American consumers already own a mobile phone—phone companies are finding that growth is slowing. With more options, mobile phone buyers are also becoming more selective about the calling plans and the type of phones, making the market even more competitive. “In short order, sentiment in the telecom sector has gone from bullish to guarded to ... well, slightly queasy,” Craig Moffett, a research analyst at Sanford C Bernstein & Co who follows communications companies, wrote in a recent report.

Wireless phones are, by far, more common than landlines. According to CTIA, the wireless industry’s trade group based in Washington, there are 262 million wireless subscribers in the US. In contrast, the Federal Communications Commission counts 163 million business and residential landlines as of June 2007, its latest report.

Currently AT&T has 60.4 million traditional landlines—in contrast to 68.7 million subscribers in the second quarter of 2006—and 71.4 million wireless subscribers.

AT&T has been losing landline subscribers each quarter at an accelerated rate since 2006. It dropped 7.4% in 2007. Analysts think that the economic downturn could also have an impact on the landline business. They say consumers looking to cut expenses will drop their landline—which can cost up to $60 a month—before they drop their wireless phone plan. “I think AT&T is peddling as fast as it can to transform themselves from a wire line to a wireless company,” Moffett said. “To a degree it is working.” The question, though, he said, is “is it fast enough?”

Verizon also is seeing slower growth. On Tuesday, Verizon Wireless said it added 1.5 million subscribers in the second quarter of 2008, the same number it added in its first quarter. Both numbers are down, though, from the fourth quarter in 2007, which was 2 million new subscribers. Verizon Wireless, which is a partnership between Verizon and Vodafone, has 68.7 million subscribers. “It’s still very strong,” said Roger Entner, a senior vice-president for Nielsen IAG, a market research firm. But compared with earlier figures, he said, it “is indicative of a slowdown.”