It was inevitable, really. Still is, matter of fact. According to this article in the New York Times, Verizon Communications decided not to replace traditional telephone lines destroyed in Hurricane Sandy. To us in the West, it’s important to note that Verizon Communications is not the cellphone company, but the landline phone utility, like Centurylink. It’s the product of the merger between Bell Atlantic and GTE, and it’s business is, well, landlines.

According to the NYT article, “Verizon’s move on this sliver of land is a look into the not-too-distant future, a foreshadowing of nearly all telephone service across the United States. The traditional landline is not expected to last the decade in a country where nearly 40 percent of households use only wireless phones. Even now, less than 10 percent of households have only a landline phone, according to government data that counts cable-based phone service in that category.”

It’s unusual, to say the least, when a business enterprise passes on an opportunity to replace its internal infrastructure with the proceeds of an insurance settlement. So, why is Verizon doing this? Two reasons:

1. Obsolescence

The statistics quoted above tell the story: less than 10% of households have only a landline any more. Cell phones and VoIP (Voice over Internet Protocol) offer callers more convenience (cell) or lower cost (VoIP) than traditional landlines. Many households have landlines only because of unrelated reasons. For instance, security systems, medical equipment, even dish TV systems, require an old-fashioned POTS (Plain Old Telephone System) line.

Furthermore, the cost to install copper lines is rising. Worse, the cost of maintenance is rising even faster. “We’re scavenging for replacement parts to be able to fix the stuff when it breaks,” says a high-ranking AT&T executive.

2. They Can

Verizon Communications (VZ) now owns Verizon Wireless (VW). This wasn’t always so. In the beginning, VZ enlisted the help of European cell phone giant Vodafone to enter the cellular market in the United States. In exchange, Vodafone owned almost half of Verizon Wireless. However, a month or so ago, VZ borrowed $65 billion, issued some shares and put together one of the largest deals in history to buy out Vodafone for $130 billion.

Verizon now fully owns both the landline and cellular companies bearing its name. You can imagine the boardroom thinking now: “Hey guys, we have two businesses. One is regulated by government and is not profitable. The other is more profitable, and we only have two or three competitors left. Which one should we grow?”

It isn’t wise to have two or three copper lines into every house, is it? And so it’s no surprise that landlines are all monopolies. Being monopolies, they are regulated to protect customers from gouging, the favorite practice of unregulated corporations. Those corporations, when they have a choice, will therefore always opt to shrink their regulated businesses and grow the profitable ones. And, since they have the monopoly, nothing stops them from simply discontinuing their service. Government can’t compel nobody to provide a service.

Lest it sound like an evil corporation is baring its ugly monopolistic fangs and ripping up its captive customers, we should not forget that the customers are the ones who popularized wireless phone usage because of its superior convenience. New inventions replacing old ones, destroying them even, has acquired a name: creative destruction.

Creative Destruction

Years ago, Karl Marx and others believed that capitalism will die and be replaced by a new world order, which became manifest in what we know today as communism. Their reasoning was based on what happened in the economies of the developed world. We know it today as the business cycle (another term introduced may Marxists) with a recession every 7-10 years, but back then the periodic pullbacks in the economy were known as “panics.” As with recession today, panics were a regular feature of the economic landscape, particularly destructive because nothing in economic life was regulated. Millions lost their farms, their homes and their possessions in those panics. Marx, Engels and their followers argued that this was simply not a way to live a life. The root of the problem, they argued, was unfettered capitalism, which inherently is destructive.

Their observation resonated with many people, among them Joseph Schumpeter, who pulled their arguments together to draw an entirely different conclusion: that it was innovation which created growth in the economy, even when innovation (like digital cameras) destroyed old, proven technologies (like film cameras).

Creative destruction is painful, but in the long haul the benefits outweigh the harm done. (At least that what those not directly hit by innovation say.)

Lifestyle Change

As innovation destroys old industries, it sometimes changes how we live. Automobiles and airplanes changed how we get around.

But sometimes, you just have to smile at some of the unintended changes that are part of the evolution of civilization. Take, for example, the venerable French baguette, long the cornerstone of the French diet. The baguette, it seems, is on the endangered species list, at least according to this BBC article. (For the moment, I shall leave it to the reader to ponder the bias, or lack thereof, of a staunch British institution to comment on French controversies.) According to the article, a decline in baguette consumption has prompted the French Bakers’ Lobby to <a ” href=”http://www.tuasprislepain.fr/”>launch a campaign to get people eating more loaves. The campaign’s slogan: “Yo! Got Bread?” (Coucou, tu as pris le pain?)

Who would have thought that to the long list of obsolete good things in life, from slide rules and LP records to home movies and riding trains, we would be adding the venerable baguette?

But that goes to show change, foreseen and unforeseen, is a constant part of our lives. What else will change? We don’t know. This we do know, though: you will still need to make sure your insurance coverage is up to date and adequate. Oh, and if it can come down, that helps, too. You won’t know of any savings you could get unless you give Grant a call, though. His number is at the top. Do it now.

 

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