In a landmark study by Stratecast, residential consumers were asked about their preferences on a number of communications services.

… while 'cord cutting' is continuing, there may be barriers approaching that will curtail this telecom trend if left unaddressed by carriers. Mike Jude Program ManagerStratecast/ Frost & Sullivan

Results of this survey, which Stratecast will release in a series of reports beginning in January, illuminate a number of communications transitions taking place in the consumer space, including a possible shift in how subscribers view wireless telephone service as a replacement for traditional wireline telephone service.

In particular, the study revealed that while "cord cutting" (switching from a landline phone to wireless telephone service) is continuing, there may be barriers approaching that will curtail this telecom trend if left unaddressed by carriers.

Consumers, it turns out, like their cell phones very much, but feel they derive higher value from their landline phones. Ultimately, this lower value perception may convince consumers that staying with a landline is the best option.

Comparisons between wireless and wireline telephone service begin with assessments of quality and value. Likewise, this survey also began with those two dynamics. Consumers rated their cellular service very highly on average. The following chart shows how customers in the survey sample rated their cellular service quality.

Ratings are definitely biased on the high side. In fact, the average rating across nearly 900 respondents was 5.82 on a scale of 7 -- an amazingly high figure when you consider that in the same study, respondents rated their landline telephone service slightly higher at 5.92 on the same scale.

Nevertheless, wireless telephone service is not as good as it could be. Only 30% of respondents indicated that they consider cellular service an excellent value. By comparison, nearly 35% of respondents rated their landline telephone service an excellent value.

When we define value as the amount of utility or benefit delivered by a service for a given price, it is easy to see that there is a significant barrier preventing a majority of consumers from accepting wireless telephone service as a replacement for their traditional landline service. Only 6% of respondents said they would be very likely to "cut the cord" and go completely wireless if presented with the opportunity to do so.

This, in fact, defines the challenge for wireless carriers and represents the single biggest opportunity for subscriber growth. By increasing the value perception for wireless telephone service, carriers may be able to convince the 48% of subscribers who said they might switch to wireless-only service to actually make the move.

Value perception can

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be addressed either by increasing utility or by decreasing price. Of the two options, price reduction represents a death spiral, since that route means a reduction in average revenue per user (ARPU) and, consequently, revenue. It's better to increase utility.

Contrary to popular belief, utility is not the same as functionality. While functionality and its attendant bells and whistles are important, things like reliability and customer service matter just as much. As most carriers know, utility in the wireless world also is highly dependent on roaming and network access.

Wireless telephone services challenge carriers to deliver utility

The challenge for carriers is going to be balancing delivery of utility with the cost of delivering service. It is important for carriers to make accurate assessments on the cost side -- for example, external dynamics such as government-imposed Net neutrality regulation would need to be factored in as an additional cost of doing business.

It is more critical, though, for carriers to carefully assess their subscribers' perceptions of utility for any new service or capability before making an infrastructure investment. As this survey suggests, carriers that do their homework and appreciate the utility their networks deliver have a significant -- and as yet untapped -- opportunity to generate higher margins and revenues.

About the author: Mike Jude is a program manager at Stratecast/Frost & Sullivan in charge of the consumer communication services practice. He brings 30 years of experience in technology management in manufacturing, wide-area network design, intellectual-property management and public policy. Jude holds degrees in electrical engineering and engineering management and a Ph.D. in decision analysis. He is co-author of The Case for Virtual Business Processes: Reduce Costs, Improve Efficiencies and Focus on Your Core Business, Cisco Press, 2003.

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