Cutting Cord May Not Cut Costs

With nearly 30 percent of total personal calling minutes in the U.S. being conducted on mobile phones, there is a strong consideration for many to eliminate their landline phone service entirely. Yankee Group is forecasting a 50 percent increase to 200 million in mobile phone subscriptions by the end of 2006, which could add up to massive landline cord cutting.

“Wireline replacement is a $50 billion opportunity in what we expect to be a $110 billion mobile market in 2006,” says Keith Mallinson, executive vice president of the Yankee Group’s Wireless/Mobile Research. “Even more significant than the 3 percent of people who have actually cut the cord and have a mobile as their only phone, is the major migration of personal calling minutes to mobile phones by those who retain landlines but use them less.”

The Telecommunications Research & Action Center (TRAC), a non-profit organization that addresses the needs of residential telecommunications customers, identified the groups that would be most likely to cut the cord on their landline phone service:

  • Young adults living alone or in group houses – This market could take advantage of unlimited night and weekend minutes.
  • Empty Nesters – With kids gone and adults working, very little calling is done from home anyway.
  • Second Line Users – The wireless phone can be used for voice calls while the landline is used for the dial-up Internet access.

TRAC recommends comparing service levels and pricing before cutting the cord, but consumers should be aware that it is getting more expensive to have wireless service.

Econ One found that the cost of using a cell phone in the U.S. rose 1.4 percent in August 2002 – up $0.51 from July. The average cost of monthly service in August 2002 in 25 major cities, across four typical usage levels (50, 200, 500 and 800 minutes), was $37.44, compared to $36.93 in July. The average cost went up in 18 of the top 25 markets, and fell in seven.

All California markets tracked by Econ One showed sizeable increases, led by San Francisco (5.4 percent), Los Angeles (4.6 percent), Sacramento (4.4 percent), and San Diego (4.2 percent).

Cities witnessing declines were New York (-3.4 percent), Philadelphia (-1.5 percent) and Washington, D.C. (-1.0 percent).

The lowest costs for monthly cell phone service in August were in Cleveland, at $35.71 (up from $35.33), Sacramento at $36.21 (up from $34.67) and Tampa at $36.31 (down from $36.56).

“A majority of the cost increase can be attributed to the elimination or alteration of short term promotional offers issued by the carriers,” noted Charles Mahla, senior economist for Econ One. “AT&T, Verizon, and Sprint either ended or reduced promotional values in certain plans.”

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