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Publisher's Letter

Fixed line phones no longer a necessity

By Leo Simpson

This month’s feature story on "Unwired" internet access must worry anyone who has Telstra shares. Why? Because Telstra’s customers no longer need a fixed line telephone service to obtain internet access. Up till now, if you wanted internet access, whether dial-up via a 56K modem or an ADSL broadband service, you had to have a fixed line telephone service. The exceptions would be if you had cable TV, in which case you could have a cable modem for internet or you might have used a satellite internet service. For the vast majority of people though, a fixed line telephone was a necessity.

Of course, if you don’t need internet access and you already have a mobile phone, you have not needed a fixed line telephone service for some time. In fact, tens of thousands of people living in rented accommodation throughout Australia have long ago opted not to bother with a fixed line service. In doing so, they avoid installation charges which are hard to justify, since they normally only require a few minutes work by a technician at the local exchange. They also avoid monthly rental charges, high STD phone charges and so on.

For a person who makes very few phone calls, a prepaid mobile is definitely the way go. There are no rental charges, you only pay for the calls you make and incoming calls are free. Why bother with a fixed line telephone?

This is a world-wide trend, with the number of mobile phones rapidly exceeding the number of fixed line installations. In fact, many developing countries look to be leap-frogging the large infrastructure cost of fixed lines and just adopting mobile phone services instead.

In Australia, one could foresee a situation where most private individuals do not have fixed line phones – they would be confined to businesses and organisations. And then you have to factor in the concept of "Voice over IP" as described in last month’s issue – for virtually any telephone calls. Large businesses are already migrating to VOIP for long distance calls and small business and private individuals will largely follow in the future. So even if they keep their fixed line telephone systems, they will be using VOIP and ADSL to cut their long-distance phone costs.

All of which does not augur well for Telstra. It has an enormous investment in its fixed line network in which it has a monopoly. But it doesn’t have a monopoly in mobile phones where it is being buffeted by intense competition by some very aggressive players. So unless there is some new development which encourages customers to take up more services involving fixed line telephones, one can only see Telstra’s fixed line revenues being severely eroded in the future. Sooner or later, and probably sooner, the investment pundits will realise this and the shares will go down accordingly.

This is yet another example of the inexorable march of technology. At one time, steam engines and horseless carriages had a very big market but they fizzled to nothing.

What can Telstra do? In the short term, it might like to buy Unwired Australia!

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