An interesting article on Telegeography last week revealed that landline telephony is declining, but a lot slower than what many of us might think. Many people believe that landline telephone usage rapidly declines as a result of fixed-mobile substitution.
However, the aforementioned study from Telegeography shows that the decline of phone lines is limited to 1.3% per year CAGR since 2008 – the year in which the total number of wired phone lines peaked.
In the article, Telegeography attributes this limited decline to the fact that in the residential market, fixed telephony has become a standard feature of “multi-play“ offers, including broadband internet, TV and mobile telephone. As a result, the decline in number of phone lines is limited. Furthermore, there are two primary trends in residential telephony:
1. Traditional phone lines are rapidly being replaced by VoIP-based phone lines. According to Telegeography, approximately 1/3 of all landline phone lines have been replaced by VoIP based phone lines. Statements that refer to the “death of the PSTN” refer to the replacement of TDM (circuit switched) technology in the telco’s network by VoIP technology. This is mainly driven by cost-efficiency programs, rather than by new service development. The user experience remains the same: the phone line allows you to receive (narrow-band) voice calls through dialing a phone number. Because of the fact that next generation interconnections between telecos are not in place (yet), there are no fancy features that VoIP could enable, such as HD voice or video, on these VoIP phone lines. You can read more on this in my blog post, “Is there a market for HD voice?”
2. While the number of phone lines remains more or less stable, residential landline voice traffic has declined considerably over the last years, as it has been replaced by mobile and VoIP-to-VoIP calling. According to Ofcom’s latest Communications Market Report, the number of fixed outgoing phone calls made by residential phone lines has decreased with an 8.2% CAGR over the last five years.
However, there is another reason which explains why the number of phone lines remains more or less stable that is not addressed in the Telegeography report: fixed telephony still rules in enterprise telecommunications. While there is absolutely some fixed-mobile substitution happening, especially within small companies, there is no equivalent of the PBX – on premise or cloud-based – in mobile communications. A PBX provides features such as handling multiple calls at the same time, attendant/reception features, address book, conferencing, hunting groups, etc. In addition, the cost of fixed telephony for the enterprise is substantially lower than the cost of mobile telephony.
As a result, enterprises are still investing massively in their IP PBX infrastructure. According to Wainhouse Research, Microsoft Lync Enterprise Voice will become the predominant IP PBX/UC system. Recent IP PBX infrastructure is often described as a UC (Unified Communications) system as it integrates mobile telephony to a certain extent and some all-IP communications such as video conference and instant messaging; however, those features are only available for internal use. As a result of this introduction of new internal communication functionality, the traditional deskphone is increasing being replaced by, or at least completed with, a software client. For external communications, the IP PBX relies on landline phone numbers and phone lines, which can be either circuit switched (ISDN) or packet switched (SIP trunks). As a result, business phone lines and enterprise voice traffic remain pretty much stable, while the underlying technologies are changing from circuit switched to packet switched technologies, and increasingly more IP PBXes are moving to the cloud.
And of course there is some replacement of fixed telephony by VoIP-to-VoIP calling in business but, in my opinion, this is has been primarily for internal usage, in absence of an internal UC platform offering presence and IM and video calling.