In the three years to 2017, the average price of wireline telephone services has been rising at an estimated average annual rate of 1.5%. During this period, many customers have been dropping landline telephone services in favor of alternate communication methods. This shift in telecommunication preference is due to the improvement of mobile telephone technologies and other substitutes, which has made wireline telephone services significantly less desirable. The resulting decline in demand has hindered suppliers’ ability to pay for necessary telecommunications infrastructure maintenance. Consequently, suppliers have been passing their increased operating costs to their remaining buyers in the form of higher services prices.
The changing face of telecommunications in the United States has forced service providers to raise wireline telephone service prices to stay afloat. In recent years, the convenience and mobility of smartphones has strongly incentivized businesses to switch from wireline telephone services to alternate telecommunication methods. In addition, many residential customers have been discontinuing their wireline telephone services, opting to use cell phones as their primary phone. This mass migration away from wireline telephone services has led to a decrease in revenue for suppliers, forcing them to cut profit margins in order to cover landline infrastructure maintenance costs. Wireline telecommunication infrastructure maintenance includes replacing sections of aging or damaged telecommunication wires and preventing static. With more customers leaving the market and profit margins shrinking, increases in operating costs are being passed to remaining landline customers in the form of higher service prices.
Fortunately for buyers, wireline telephone service prices have been exhibiting a low level of volatility during the past three years. Low price volatility benefits buyers by reducing the likelihood of significant price fluctuations. Moreover, low price volatility allows buyers to more accurately budget for future service expenses. Nonetheless, to further mitigate rising prices, buyers of wireline telephone services can enter into short-term contracts as services are needed.
During the three years to 2020, the average price for wireline telephone services is forecast to continue rising at an average annual rate of 2.2%. The attractiveness of alternate telecommunication methods is expected to drive more customers away from landline telephone services. In response, service providers will continue to pass rising infrastructure maintenance costs to the remaining buyers in this market.
The number of mobile internet connections is expected to increase during the next three years, indicating the continued adoption of substitute services and the migration away from wireline telephone services. In fact, more residential customers will opt to drop their landlines and use cell phones as their primary means of communication. The rising acceptance of VoIP services as a replacement for traditional landline telephone services will also continue causing demand for traditional wireline telephone services to dwindle. These trends will force market suppliers to raise prices for their remaining customers in order to maintain their telecommunications infrastructure.
Luckily for buyers, changes in regulations during the three years to 2020 are expected to mitigate the effects of these trends on service prices. The Federal Communications Commission (FCC) has historically upheld rules asserting that wireline telephone service companies must maintain and keep landline infrastructures because many households rely on landlines as their sole form of communication for emergencies. However, in light of the shift toward substitute services, these regulations are expected to be relaxed, allowing service providers to replace part of their traditional telecommunication infrastructures with internet-based telephone technologies. This trend is forecast to prevent service prices from rising at more significant rates during the period.
Price volatility will also remain low through 2020, allowing buyers to more accurately budget for purchases. Still, considering that price growth will persist in the coming years, buyers are advised to enter into shorter-term contracts.