G217


List all graphics

Wall Street Journal

September 20th, 2007

Companies Try to Teach Old Phones New Tricks

Cutting the Cord

Growing numbers of Americans are ditching their landlines in favor of using their cellphones alone.

XML Representation of Graphic

Google Chart of Graphic from XML Representation:

Land-line telephones, welcome tothe party.

In recent years, as phone companieshave beefed up their cellphones with a steady stream of enhancements, innovations tothe oldland-line phonehave been slow tocome.

But now, in a move largely designed tokeep consumers from ditching land lines, phone companiesare adding tohome phonessome of the features popular on mobile devices, like address books and text messaging. And equipment makers' latest home and office phonesinclude a range of newfeatures like in-home video baby monitoring, instant messaging, and access toemail and the Web.

The stakes are huge for the phone companies, especially those such as Embarq Corp., Qwest Communications International Inc. and Windstream Corp. that don't own their own wireless networks and are most susceptible tothe increasing consumer shift away from traditional phones tocellphones. A recent survey by Harris Interactive Inc. found that 11% of U.S. adults use only their cellphones tomake calls.

Land lines have traditionally offered better call quality than cellphones, especially indoors. But even that advantage is eroding as wireless providers address the issue. This week wireless provider Sprint Nextel Corp. began selling a Samsung product in some markets that acts as a mini cell tower inside users' homes, boosting a low signal toimprove reception. It costs $50 and requires an additional $15 monthly subscription. T-Mobile USA, a unit of Deutsche Telekom AG, now sells phonescapable of operating on home Wi-Fi hotspots, another method of improving indoor coverage.

Given these developments, companiesselling land-line phonesare putting a higher priority on developing sleeker phoneswith more features. "Any companyconcerned about defending a land-line customer base should be working on this," says telecom industry consultant Rory Altman.

Embarq, a spinoff of Sprint Nextel that has about 6.7 million subscribers in 18 states, is adding an address book feature toits home phones, allowing people tolook up an entry and dial it by speaking a name into the handset.

Embarq is also testing a text-messaging function for home-phoneusers in some markets. When a text message is sent toa land-line number, the home phonerings, converts the message into audio, and plays it back. The land-line phoneuser can reply with an audio message or press a button tosend a canned text response such as "Thank you" or "Where are you?"

Those newfeatures don't require consumers tobuy a newhandset, so Embarq can roll them out quickly. But over time, the companyhopes tooffer a "digital home phone" that will have a screen showing addresses and voicemails and provide basic information like news, weather and sports. The companyis already working with manufacturers tobuild that product. Verizon Communications Inc. is planning tooffer a similar device called the Verizon Hub sometime next year.

"I think there's a lot of opportunity toinnovate around home phones," says Embarq Chief Executive Dan Hesse. He says that while land-line phoneshaven't changed much in the past decade, cellphones have seen a boom in innovation. "Why should cellphones have all the fun?" he adds.

Equipment makers are already creating more advanced land-line phonesfor both the home and office. Motorola Inc. has begun offering phonesthat include ringtones, phonebooks and instant messaging. One new phoneeven comes with a portable camera and intercom system that can wirelessly stream video and audio from any room in the house tothe phone-- serving as a potential replacement for a baby monitor.

VTech Communications Inc. recently began selling a phoneoffering features like weather alerts, directory search, email and instant- messaging on a small color screen for $129 at select Best Buy stores. A soon-to-be launched GE InfoLink phone, made by Thomson Inc., displays Web content on a miniature screen above its keypad.

Greg Urban, product manager for Thomson's Consumer Network Solutions division, says the technology is designed to"get people going with the things they need tostart their day." The device, which costs $179 for two phonesand an additional piece of hardware needed toplug into users' broadband connection, will go on sale later this year.

Meanwhile, some Internet-phonestart-ups are trying toencroach upon the traditional land-line business by offering features that aren't standard with regular land-line phoneservice. Internet-calling startup Ooma Inc. of Palo Alto, Calif., currently offers users a free second line as well as the ability tolisten tovoicemails through a Web site.

Ooma's Chief Executive Andrew Frame says the companyplans toexpand the "Ooma lounge" Web site tooffer more premium features, which could include the ability todownload ringtones or receive online alerts in the coming months. Ooma is currently charging an introductory price of $399 for its hardware, an answering-machine like box. But after that steep fee, users don't face any monthly charges for U.S. calls.

Tobe sure, these newland-line phoneswon't necessarily reverse the trend of consumers giving up land lines for cellphones. There's still one wireless feature they can't match: mobility.

Also, not every cellphone feature translates well toland lines. Embarq began rolling out a service in some markets last fall that allowed home-phoneusers toassign songs for callers tohear -- similar to"ringback tones" on cellphones. But the initiative fell flat in the early trials, because while choosing a ringback tone "is a personal decision, a home phoneis a community device," said Dennis Huber, Embarq's senior vice president of product development.

Mr. Altman says phone companiesdon't need toget too fancy too fast. Just building easy-to-update contact lists into phoneswould go a long way with consumers, he said. "That would solve 70% of their problem," Mr. Altman said.

AT&T Inc., the nation's largest phone company, isn't fighting the consumer shift, partly because its cellphone unit, which launched Apple Inc.'s iPhone this summer, is benefiting from the trend. Ralph de la Vega, AT&T's group president for regional telecommunications and entertainment, said in some parts of the country, the companyis no longer requiring customers tobuy land-line voice service in order toget a discounted rate on high-speed Internet access. He says: "Our point of view is, if you don't want it, we won't force you tobuy it." The plan will be available nationwide by the end of the year.