The Transformation of Personal Communications and the Erosion of Traditional Voice Provider Dominance

Abstract

The paper examines the evolution of personal communications and the implications for traditional switched voice services provided by incumbent local exchange carriers. As the nature of personal communications has evolved and become increasingly competitive, incumbent local exchange carrier dominance of communications through the provision of voice telephony has eroded, and therefore so has the primary rationale for regulating traditional voice telephony. The primary focus of this analysis is residential communications. In particular, mobile and packet-switched broadband technologies have accelerated the adoption of alternative voice access methods for residential consumers, including the adoption of wireless telephony, interconnected Voice over Internet Protocol (VoIP), and competitive switched telephony as alternatives to switched voice telephony provided by incumbent local exchange carriers. In addition to access, mobile and broadband technologies have enabled a shift toward entirely new application-level modes of communication, such as text messaging, instant messaging, email, social networking, computer telephony, and Internet video conferencing. While these shifts in access-based and application-based alternatives have occurred incrementally over many years, the transformations — in the way consumers communicate with each other, plus the associated industry responses and changes industry structure—have been substantial. The analysis measures the magnitude of the consumer shift away from incumbent switched voice. It builds up incrementally a measurement of the shift away from incumbent switched voice, from a very conservative approach focused simply on access technologies to more comprehensive approaches taking into consideration application-level communications alternatives. The most conservative measure examines access choices for primary lines at the household level. It is possible to eliminate the primary line constraint and focus on total lines or connections. Extended to wireless, this is the most generous access-based approach, given multiple wireless connections per household. We next expand the measurement of alternatives to voice to include application-level communications modes. This more comprehensive approach takes into account the ways that technology continues to change the nature of personal communication. For example, there would appear to be greater emphases on time shifting, place shifting, device-shifting, format shifting, multi-party messaging, and integration with online applications and activities. After a discussion of measurement challenges, the analysis utilizes national data to map out the shift in demand for personal communications. In particular we map the extent of demand for communications at the application level by measuring the diffusion of broadband and mobile devices, networks, and applications compared with traditional voice access methods. Once we have developed reasonable measurements to capture the shift to alternative communications methods, we discuss opportunities for assessing wireline voice providers’ competitive responsiveness, taking into consideration the benefits and limitations of traditional measures.