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U.S. Consumer Preferences for Telephone and Internet Services: Summary

Core Content

This report by the RAND Corporation, titled U.S. Consumer Preferences for Telephone and Internet Services, provides an analysis of consumer preferences for four major telecommunications services: landline telephone (fixed voice service), mobile telephone (mobile voice service), fixed Internet, and mobile Internet. The study is based on data collected from the RAND American Life Panel (ALP), a nationally representative Internet-based survey of over 6,000 U.S. residents aged 18 and older.

The research aims to understand how consumers value these services and how their preferences vary across different demographic groups. This is crucial for regulators, such as the FCC and public utility commissions, as they consider how to manage the transition from traditional landline telephone services (POTS) to newer technologies like mobile and Internet-based services.

Main Points and Findings

• Current Technology Landscape:

  • The U.S. is transitioning from traditional landline services to mobile and Internet-based communication technologies.
  • Mobile telephone services have become a significant substitute for landlines, with approximately 48% of households using only mobile, and 48% using both mobile and landline services.
  • About 93% of households have some form of telephone service, and 85% have Internet access.

• Participation in Reduced-Price Programs:

  • Around 8% of Americans participate in government-sponsored reduced-price telephone programs (e.g., FCC's Lifeline program).
  • Only 2% of households have none of the four services, indicating a high overall adoption of telecommunications services.

• Stated vs. Revealed Preferences:

  • Stated preferences suggest that mobile telephone service is most important to consumers, followed by fixed Internet, mobile Internet, and landline telephone.
  • Revealed preferences align with these rankings, showing similar trends in service adoption.

• Preference Classes:

  • Four distinct preference classes were identified:
    1. 66% of the population prioritizes mobile telephone over landline telephone.
    2. 14% prioritizes Internet and mobile telephone over landline telephone.
    3. 20% still view landline telephone as the most important service, with mobile telephone as a close second.
    4. This last group tends to be older, less employed, and lower income, yet they still have similar mobile telephone adoption rates as other groups.

• Welfare Implications:

  • The shift from POTS to mobile and Internet services has resulted in no major welfare losses for consumers who have adopted these new technologies.
  • However, the 20% who prioritize landline telephone may experience welfare losses if legacy services are phased out.

• Methodology:

  • The study uses a combination of revealed preferences (actual service usage) and stated preferences (self-reported importance rankings).
  • Advanced statistical techniques, such as mixed logit and latent-class logit models, are used to identify preference heterogeneity.
  • Best-worst scaling is employed to estimate the relative importance of services.

Key Information

• Data Sources:

  • The ALP provides household-level data, unlike many other studies that focus on individual subscriptions or connections.
  • The study also references other data sources, such as:
    • FCC Form 477 for subscriber and connection-level data.
    • CDC's National Health Interview Survey for telephone coverage data.
    • Pew Research Center for Internet usage trends.
    • U.S. Census Bureau for demographic and economic data.

• Regulatory Context:

  • Telecommunications services are traditionally regulated due to their public good attributes and natural monopoly characteristics.
  • The FCC is evaluating how to assess the adequacy of modern replacements for legacy services, and this study contributes to that process.

• Research Objectives:

  • To understand the distribution of services among households.
  • To identify demographic and geographic differences in service usage.
  • To estimate underlying consumer preferences for each service type.

Conclusion

The study highlights the shift in consumer behavior from landline to mobile and Internet-based services, and the variation in preferences across different groups. It suggests that while the majority of consumers prefer mobile services, a significant minority still values landline telephone. This information is valuable for regulatory decision-making, especially in the context of technology transitions and policy reforms. The findings also provide methodological insights for researchers interested in estimating consumer preferences through stated and revealed preference analyses.

This research was sponsored by the FCC and conducted by the RAND Science, Technology, and Policy Program, which focuses on the intersection of technology, behavior, and policy. The report is intended to support rulemaking processes and policy development related to the ongoing telecommunications transformation in the U.S.