Eight times more households choose less-regulated wireless voice service over the most-regulated landline option when they rely on a single service
Policymakers seeking to craft a new Compact for 21st century networks that advances essential consumer values must recognize and address how expanding consumer choice and preferences - spurred by innovation and new competitive offerings - have fundamentally altered the telecommunications landscape, according to a new study released today by the Internet Innovation Alliance (IIA).
Policy scholar and communications industry analyst Dr. Anna-Maria Kovacs authored the 36-page report, “The New Network Compact: Consumers Are in Charge.” The paper details the impact of consumer choice in the digital marketplace and demonstrates how this new paradigm will influence future efforts to design a set of basic consumer protections for the communications platforms of tomorrow.
There is a growing bi-partisan consensus to apply traditional core values—universal connectivity, public safety and consumer protection—as well as the more recent core value of competition, to next-generation networks and services. The study points out, however, that competition has freed consumers from regulatory control. The existing model was based on granting regulators control over a monopoly market with a single service provider, treating consumers as if they were homogeneous, and forcing them to cross-subsidize one another under a price-regulated environment. The advent of new technologies and competing services now offers consumers an array of choices, including the choice and ability to utilize communications services that can circumvent regulations that protect certain core values. The challenge for regulators is to provide necessary protections for consumers without limiting their freedom of choice.
The World Has Changed: Consumers Have Choices
From voice communication to social networking, Kovacs notes how consumers make cross-platform choices depending on message, audience and context. Their purchase decisions cut across regulatory silos and providers, and their selection of a voice plan may depend on favorite shows offered in a video package that may be part of a bundle with a broadband package. Wireless voice and wireless broadband may or may not be accompanied by fixed broadband in those packages.
The study provides greater insight into how dramatic changes in consumer preferences are reshaping the communications marketplace:
- In 1996, 94% of households subscribed to plain old telephone service (POTS), and 6% did without landline telephony altogether.
- Only 5% of consumers still rely exclusively on POTS, the most-regulated voice service option.
- As of year-end 2013, two out of five (41%) consumers chose wireless-only in the voice market—eight times as many as those who relied exclusively on POTS.
- Another 26% of American households subscribed to Voice over Internet Protocol (VoIP), either alone or in combination with wireless. 
- Consumers often replace multiple voice calls with a tweet or a post on social networks, services that do not support Universal Service.
- Consumers choose Internet access from a variety of platforms—mobile (62%), cable (22%), wireline DSL (8%), wireline fiber (7%), and fixed wireless or satellite (1%). 
- Consumers in certain markets are choosing services and applications that do not provide automatic 911 communications capabilities.
- In today’s video market, consumers pick from a buffet of providers including wired cable (48%), broadcast (10%), telco (10%), satellite (31%) and broadband only (1%).
“Because consumers today don’t have to purchase what regulators design and a monopolist provides, they can’t be treated as a homogeneous body without choices; a ‘one size fits all’ solution is no longer viable,” commented Kovacs. “Amidst extensive and varied competition, providers survive only if they give consumers what consumers want. Otherwise, consumers move to competing providers and take their spending and the associated earnings with them. Cross-subsidies don’t work, because consumers can flee the subsidizing services. Regulators can limit providers’ earnings on the upside but can’t protect the downside.”
Kovacs added, “With the old network compact, regulators were in charge, but the new reality is that consumers are in control.”
Need for Strategically-Targeted Regulation
At bottom, the Kovacs analysis notes that the success of any future Network Compact will hinge on the ability of regulators to recognize that consumers have varied needs and desires. Regulators can only accomplish their goals if they respect consumers’ power and choices. To accomplish core values, regulators must focus on vulnerable consumers and target specific needs not addressed by the market, she says.
“The 21st century challenge of regulators in preserving and advancing the core values must take into consideration new platforms and the plethora of consumer choices,” echoed Rick Boucher, IIA honorary chairman who served for 28 years in the House of Representatives, where he was chairman of the Subcommittee on Communications, Technology and the Internet. “Policymakers should tailor the new Network Compact in a way that addresses specific consumer needs rather than making overly-broad attempts to regulate on a technology, platform, or service basis.”
To review “The New Network Compact: Consumers Are in Charge” in its entirety, go to http://internetinnovation.org/library/special-reports/the-new-network-compact-consumers-are-in-charge.
About The Internet Innovation Alliance
The Internet Innovation Alliance was founded in 2004 and is a broad-based coalition supporting broadband availability and access for all Americans, including underserved and rural communities. It aims to ensure every American, regardless of race, income or geography, has access to this critical tool. The IIA seeks to promote public policies that leverage the power of entrepreneurs and the market to achieve universal broadband availability and adoption.
FCC, Telephone Subscribership in the United States (Data through July 2011), 2011, table 1, p. 6.
FCC, Local Competition as of June 30, 2013, and CDC Wireless Substitution, released 7/2014.
FCC, Internet Access as of June 2013, Table 6, p. 24 and John C. Hodulik, Batya Levi, Lisa L Friedman, and Christopher Schoell, Telecom and Pay TV Play Book, UBS Global Research, July 10, 2014, Figure 14, p. 23.
Nielsen, An Era of Growth: The Cross-Platform Report, March 2014, Table 7, p. 17.
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SOURCE: Internet Innovation Alliance