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Home Internet and Phone - US - September 2010

Home phone and internet services are facing tremendous change. Commoditization and competition, including new competition from cellular carriers, has led to lower prices and consolidation. Convergence has made it possible for cable operators to offer calling services, even as phone companies offer television services. And changing trends in how consumers communicate and consume content are driving further change, leading some consumers to rely even more heavily on broadband connections for entertainment even as others look to cut the cord entirely and access calling and the internet from phones.

This report will analyze the market for home internet and phone services in detail, including:

  • Historic and projected sales for home internet and phone services will be provided for 2004 through 2014, including sales trends for each segment.
  • Maintaining wired infrastructure is costly, leading to a market dominated by large players including AT&T, Verizon, Time Warner, and Comcast, amongst others, and driving consolidation. For example, CenturyLink purchased Qwest and Embarq during the past two years, making it the fourth-largest phone company. Strategies and future prospects for the major players will be discussed.
  • Factors impacting the home internet and phone sectors will be discussed, including high penetration levels that limit growth potential; consumers’ increasing reliance on the web for entertainment, staying connected and more; the impact of regulatory concerns, which have always played an outsize role in shaping this market; and more. Competing products will also be discussed, including the threat posed by wireless services.
  • Based on a review of extensive survey data, Mintel will discuss consumer behavior, attitudes and preferences regarding use of home internet and phone services in detail, including spending, subscribership by brand, feature usage and other factors.
  • Even within the home landline sector, there is strong potential for provider differentiation through the addition of new value added features. Consumer interest in these new features is explored, including how distinct demographic groups’ attitudes differ.

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Table of contents

  1. Scope and Themes

    • What you need to know
      • Definition
        • Data sources
          • Sales data
            • Consumer survey data
              • Television advertisements
                • Abbreviations and terms
                  • Abbreviations
                    • Terms
                    • Executive Summary

                      • A mature market faces tough new competition
                        • Potential for voice lies in added-value integration features in bundles
                          • Piracy, digital divide hamstring internet growth
                            • Wideband promising, but with limited upside on pricing
                              • Mobile broadband becoming more competitive with fixed-point
                                • New networks kick up competition
                                  • Bundled services trend favors larger players
                                    • Ad spend, innovation lag behind mobile
                                      • WiFi and bundles major growth areas
                                        • Cable and DSL vie for dominance while dial-up breathes its last
                                          • Price motivates most decisions to change service
                                            • Verizon and AT&T enjoy positive perceptions and customer loyalty
                                              • One in four heavy bandwidth users willing to splurge on wideband
                                                • Dissatisfaction with internet twice as common as phone complaints
                                                  • Novel features cross services, may drive bundles
                                                    • Room for growth in international VoIP plans for Asians and Hispanics
                                                    • Insights and Opportunities

                                                      • Present solutions, not just pipes
                                                        • Appeal to cable cutters?
                                                          • Rethinking all you can eat?
                                                          • Inspire Insights

                                                              • Trend: Premiumization and Indulgence
                                                              • Market Size and Forecast

                                                                • Key points
                                                                  • Declining revenues
                                                                    • Wideband one of few opportunities for growth
                                                                      • Figure 1: U.S. sales and forecast for home phone and internet services, at current prices, 2005-15
                                                                      • Figure 2: U.S. sales and forecast for home phone and internet services, at inflation-adjusted prices, 2005-15
                                                                  • Market Drivers

                                                                    • Key points
                                                                      • Consumers move from voice to text in a digital world
                                                                        • Figure 3: Average monthly voice minutes and texts per subscriber, 2007-09
                                                                      • New broadband technologies change the landscape
                                                                          • Figure 4: Planned 4G technologies and projected maximum speeds for major U.S. carriers
                                                                        • Consumers spending less in new normal
                                                                          • Figure 5: Disposable personal household income and personal consumption, 2006-10
                                                                        • Government regulation
                                                                        • Competitive Context

                                                                          • Consumers cut the cord
                                                                            • Figure 6: U.S. landline ownership, 2006-09
                                                                          • Mobile broadband for more mobile hardware
                                                                            • VoIP still a potential threat
                                                                              • Quadruple and quintiple plays
                                                                                • Figure 7: U.S. total cellular, pay TV, home phone and home internet revenue at current prices, by segment, 2010 vs. 2013
                                                                            • Segment Performance

                                                                              • Key points
                                                                                • Voice falls while web rises
                                                                                  • Figure 8: U.S. home phone and internet subscription revenues at current prices, by segment, 2008 vs. 2010
                                                                              • Segment Performance—Landline Phone

                                                                                • Key points
                                                                                  • Users move away from landlines
                                                                                    • Long distance sales in free-fall
                                                                                      • Pricing only going to decrease further
                                                                                        • Figure 9: U.S. home phone subscription revenues, at current prices, 2005-15
                                                                                        • Figure 10: U.S. home phone subscription revenues, at inflation-adjusted prices, 2005-15
                                                                                        • Figure 11: U.S. home phone subscription revenues, local service vs. long distance service, 2005-10
                                                                                    • Segment Performance—Internet Access

                                                                                      • Key points
                                                                                        • Stuck in the digital divide?
                                                                                          • Potential for price increases limited
                                                                                            • Figure 12: U.S. home internet access subscription revenues, at current prices, 2005-15
                                                                                            • Figure 13: U.S. home internet access subscription revenues, at inflation-adjusted prices, 2005-15
                                                                                            • Figure 14: U.S. levels of broadband and dial-up internet subscribership, 2005-10
                                                                                        • Leading Companies

                                                                                          • Key points
                                                                                            • Consolidation continues as bundles prevail
                                                                                              • Cable vs. telco
                                                                                                • Cable grows voice lines at telcos’ expense
                                                                                                  • Figure 15: Subscribers of leading U.S. landline telephone carriers, 2008-10*
                                                                                                • Internet service grows for everyone but dedicated ISPs
                                                                                                  • Figure 16: Leading U.S. ISP subscriptions, 2008-10*
                                                                                                • Revenues decline for most
                                                                                                  • Figure 17: Home phone/internet revenues for leading U.S. providers, 2008-10*
                                                                                              • Marketing Strategies

                                                                                                • Overview
                                                                                                    • Figure 18: Traditional media ad spend by leading landline phone/internet service providers, 2008 and 2009
                                                                                                  • AOL
                                                                                                    • AT&T
                                                                                                        • Figure 19: AT&T U-Verse Facebook page, 2010
                                                                                                        • Figure 20: AT&T TV ad, 2010
                                                                                                      • CenturyLink/Qwest
                                                                                                          • Figure 21: Qwest TV ad, 2010
                                                                                                        • Comcast
                                                                                                          • Comcast dumps town to return to Shaq
                                                                                                            • Figure 22: Comcasttown.com photo, 2010
                                                                                                            • Figure 23: Comcast ad, 2010
                                                                                                          • EarthLink
                                                                                                            • Figure 24: Upickem.com web ad, 2010
                                                                                                          • TWC
                                                                                                              • Figure 25: TWC local newspaper ad, 2010
                                                                                                              • Figure 26: Time Warner TV ad, 2010
                                                                                                            • Verizon
                                                                                                                • Figure 27: Verizon TV ad, 2010
                                                                                                              • WildBlue
                                                                                                              • Innovation and Innovators

                                                                                                                • Google
                                                                                                                  • United Online/NetZero and Juno
                                                                                                                  • Penetration

                                                                                                                    • Key points
                                                                                                                      • Internet use approaches universality but subscription rates stall
                                                                                                                        • Figure 28: Internet use at home and home internet service subscriptions, by year, 2005-09
                                                                                                                      • 18-34s giving up landlines
                                                                                                                        • Figure 29: Landline subscriptions, by age and household income, June 2010
                                                                                                                      • Home internet subscribers
                                                                                                                          • Figure 30: Internet access location and use of WiFi, by age, July 2009-March 2010
                                                                                                                        • “Digital divide” evident in home internet service
                                                                                                                            • Figure 31: Internet access location and use of WiFi, by household income, July 2009-March 2010
                                                                                                                          • Selling consumers on WiFi and VoIP
                                                                                                                            • Figure 32: Penetration of household WiFi and VoIP, by year, 2005-09
                                                                                                                          • Use of WiFi trends with age, but VoIP does not
                                                                                                                            • Figure 33: Penetration of WiFi and VoIP, by age July 2009-March 2010
                                                                                                                          • Those who need VoIP least using it most
                                                                                                                            • Figure 34: Penetration of WiFi and VoIP, by household income, July 2009-March 2010
                                                                                                                        • Bundled Services

                                                                                                                          • Key points
                                                                                                                            • Bundled services continue to gain popularity
                                                                                                                              • Figure 35: Penetration of telephone, pay TV, internet, and bundled services, trended, 2005-09
                                                                                                                            • Majority of high income households bundle services
                                                                                                                              • Figure 36: Bundled communications subscriptions, by age and household income, July 2009-March 2010/June 2010
                                                                                                                            • Interest in bundled services
                                                                                                                              • Figure 37: Preference for bundled services, by age, June 2010
                                                                                                                          • Internet Access Methods

                                                                                                                            • Key points
                                                                                                                              • Dial-up going but not quite gone
                                                                                                                                • Figure 38: Home internet access, trended, 2005-09
                                                                                                                              • Home internet market evenly divided between DSL and cable
                                                                                                                                • Figure 39: Methods of internet access, by year, 2005-09
                                                                                                                              • More use portable devices to access internet at home
                                                                                                                                • Figure 40: Devices used for internet access, by year, 2005-09
                                                                                                                              • One in eight households with less than $50K income remain dial-up
                                                                                                                                • Figure 41: Method of home internet access, by household income, July 2009-March 2010
                                                                                                                            • Changing Providers

                                                                                                                              • Key points
                                                                                                                                • Willingness to change service limited
                                                                                                                                    • Figure 42: Plans to change home communication services, June 2010
                                                                                                                                  • High income households and 25-44s more likely to switch providers
                                                                                                                                    • Figure 43: Plans to change home internet service, by age, June 2010
                                                                                                                                    • Figure 44: Plans to change home internet service, by household income, June 2010
                                                                                                                                  • Price paramount as reason for change
                                                                                                                                    • Figure 45: Reasons for changing home phone service, June 2010
                                                                                                                                    • Figure 46: Reasons for changing home internet service, June 2010
                                                                                                                                  • Older consumers seek bargain internet service
                                                                                                                                    • Figure 47: Reasons for changing home internet service, by age, June 2010
                                                                                                                                    • Figure 48: Reasons for changing home internet service, by household income, June 2010
                                                                                                                                • Provider Selection and Perception

                                                                                                                                  • Key points
                                                                                                                                    • Traditional phone providers still dominate voice market
                                                                                                                                      • Figure 49: Penetration of home internet and telephone providers, June 2010
                                                                                                                                    • Fiber optic providers and DirecTV are most positively perceived
                                                                                                                                      • Figure 50: Perceptions of major home internet and phone providers, June 2010
                                                                                                                                    • Young adults more familiar with ISP brands
                                                                                                                                      • Figure 51: Interest in new providers, by age, August 2010
                                                                                                                                  • Attitudes and Motivations

                                                                                                                                    • Price sensitivity
                                                                                                                                      • Figure 52: Satisfaction with service, by age, June 2010
                                                                                                                                    • The heavy bandwith user
                                                                                                                                      • Even heavy bandwidth users hesitate to pay more for faster service
                                                                                                                                        • Figure 53: Heavy bandwith users and willingness to pay for wideband, by age, June 2010
                                                                                                                                        • Figure 54: Heavy bandwidth users and willingness to pay for wideband, by household income, June 2010
                                                                                                                                      • Negative experiences with services
                                                                                                                                        • Figure 55: Negative experiences with phone and internet service, by age, June 2010
                                                                                                                                    • Creating Value via New Services

                                                                                                                                      • Interest in novel features limited by lack of awareness
                                                                                                                                        • Caller ID on television appeals to Boomers
                                                                                                                                          • Figure 56: Interest in new communications features, by age, June 2010
                                                                                                                                        • Interest in caller ID on television crosses income groups
                                                                                                                                          • Figure 57: Interest in new communications features, by household income, June 2010
                                                                                                                                      • Impact of Race/Hispanic Origin

                                                                                                                                        • Key points
                                                                                                                                          • Asians lead and Hispanics lag in internet access from home
                                                                                                                                            • Figure 58: Internet access location and use of WiFi, by race and Hispanic origin, July 2009-March 2010
                                                                                                                                          • Asians most likely to have large bandwidth needs
                                                                                                                                            • Figure 59: Peak users, by race and Hispanic origin, June 2010
                                                                                                                                          • International calling provides entry to Asian and Hispanic phone markets
                                                                                                                                            • Figure 60: International long distance usage, July 2009-March 2010
                                                                                                                                          • Blacks, Hispanics enthusiastic about merging TV, internet and phone
                                                                                                                                              • Figure 61: Interest in new communications features, by race and Hispanic origin, June 2010
                                                                                                                                          • Custom Consumer Groups

                                                                                                                                              • Voice services weak area for cable providers
                                                                                                                                                  • Figure 62: Home internet customers who receive home phone from same provider, by provider, June 2010
                                                                                                                                                • Customers more likely to stick with fiber providers
                                                                                                                                                    • Figure 63: Willingness to change home internet and phone provider, by current provider, June 2010
                                                                                                                                                  • Heavy usage and willingness to pay for speed distinct attributes
                                                                                                                                                      • Figure 64: Attitudes towards internet service, among heavy downloaders, June 2010
                                                                                                                                                  • Cluster Analysis

                                                                                                                                                      • Changers
                                                                                                                                                        • Demographics
                                                                                                                                                          • Characteristics
                                                                                                                                                            • Opportunity
                                                                                                                                                              • Loyalists
                                                                                                                                                                • Demographics
                                                                                                                                                                  • Characteristics
                                                                                                                                                                    • Opportunity
                                                                                                                                                                      • Commoditizers
                                                                                                                                                                        • Demographics
                                                                                                                                                                          • Characteristics
                                                                                                                                                                            • Opportunity
                                                                                                                                                                              • Cluster characteristics
                                                                                                                                                                                • Figure 65: Home communication clusters, June 2010
                                                                                                                                                                                • Figure 66: Interest in changing ISP, by clusters, June 2010
                                                                                                                                                                                • Figure 67: Interest in changing landline service provider, by clusters, June 2010
                                                                                                                                                                                • Figure 68: Attitudes towards home communications, by clusters, June 2010
                                                                                                                                                                              • Cluster demographics
                                                                                                                                                                                • Figure 69: Home communication clusters, by gender, June 2010
                                                                                                                                                                                • Figure 70: Home communication clusters, by age, June 2010
                                                                                                                                                                                • Figure 71: Home communication clusters, by household income, June 2010
                                                                                                                                                                                • Figure 72: Home communication clusters, by race, June 2010
                                                                                                                                                                                • Figure 73: Home communication clusters, by Hispanic origin, June 2010
                                                                                                                                                                              • Cluster methodology
                                                                                                                                                                              • Appendix: Pay Television Services Sales and Forecast

                                                                                                                                                                                  • Figure 74: U.S. revenues of cable TV providers, at current prices, 2005-14
                                                                                                                                                                                  • Figure 75: U.S. revenues of cable TV providers, at inflation-adjusted prices, 2005-14
                                                                                                                                                                              • Appendix: Trade Associations

                                                                                                                                                                                Companies Covered

                                                                                                                                                                                • Alliance for Telecommunications Industry Solutions (ATIS)
                                                                                                                                                                                • ALLTEL Corporation
                                                                                                                                                                                • Amazon North America
                                                                                                                                                                                • AOL
                                                                                                                                                                                • Apple, Inc
                                                                                                                                                                                • AT&T Inc.
                                                                                                                                                                                • Bureau of Economic Analysis
                                                                                                                                                                                • Cablevision Systems Corporation
                                                                                                                                                                                • CBS Corporation
                                                                                                                                                                                • Centers for Disease Control and Prevention
                                                                                                                                                                                • Comcast Corporation
                                                                                                                                                                                • Consumer Electronics Association
                                                                                                                                                                                • Cox Communications, Inc.
                                                                                                                                                                                • Dell Inc.
                                                                                                                                                                                • Dish Network
                                                                                                                                                                                • EarthLink, Inc.
                                                                                                                                                                                • EchoStar Communications Corporation
                                                                                                                                                                                • Electronic Industries Alliance
                                                                                                                                                                                • Embarq Corporation
                                                                                                                                                                                • Facebook, Inc.
                                                                                                                                                                                • Federal Communications Commission (FCC)
                                                                                                                                                                                • Federal Trade Commission
                                                                                                                                                                                • Flickr
                                                                                                                                                                                • Google, Inc.
                                                                                                                                                                                • Home Box Office, Inc.
                                                                                                                                                                                • HTC
                                                                                                                                                                                • Interactive Data Corporation
                                                                                                                                                                                • Metro-Goldwyn-Mayer Inc.
                                                                                                                                                                                • National Broadcasting Company, Inc. (NBC)
                                                                                                                                                                                • National Cable Television Association (NCTA)
                                                                                                                                                                                • Netflix, Inc.
                                                                                                                                                                                • Nokia Corporation (US)
                                                                                                                                                                                • Palm Inc.
                                                                                                                                                                                • Pandora Media, Inc.
                                                                                                                                                                                • Qwest Communications International Inc.
                                                                                                                                                                                • Satellite Broadcasting Communications Association
                                                                                                                                                                                • Skype Technologies S.A.
                                                                                                                                                                                • Sprint Nextel Corporation
                                                                                                                                                                                • T-Mobile USA
                                                                                                                                                                                • Telecommunications Industry Association (TIA)
                                                                                                                                                                                • The DIRECTV Group Inc.
                                                                                                                                                                                • The National Cable and Telecommunications Association
                                                                                                                                                                                • The New York Times Company
                                                                                                                                                                                • Time Warner Inc.
                                                                                                                                                                                • TiVo Inc
                                                                                                                                                                                • Turner Broadcasting System, Inc.
                                                                                                                                                                                • Twitter, Inc.
                                                                                                                                                                                • U.S. Bureau of Labor Statistics
                                                                                                                                                                                • U.S. Bureau of the Census
                                                                                                                                                                                • Verizon Communications Inc.
                                                                                                                                                                                • Verizon Wireless (Cellco)
                                                                                                                                                                                • Virgin Mobile Usa Llc
                                                                                                                                                                                • Vonage Holdings Corp.
                                                                                                                                                                                • YouTube, Inc.

                                                                                                                                                                                Home Internet and Phone - US - September 2010

                                                                                                                                                                                £3,174.67 (Excl.Tax)