Economic crunch spurs cord cutting

More than 20 million households in America have cut the cord and are going wireless for their home phone service, according to a Nielsen Mobile report released Wednesday.

Roughly 17 percent of households in the U.S. are getting rid of their old wireline phones and using their cell phones instead. That's a huge leap from just a few years ago when, in 2004, only 4.2 percent of households in the U.S. were wireless. The trend will likely continue as one in five U.S. households is expected to be wireless-only by the end of 2008, according to Nielsen.

What's driving the trend? Nielsen says its economics. As more Americans feel the squeeze from the weakening economy, consumers are looking for ways to cut costs. Many see traditional phone service, which averages about $40 a month, as a household expense that can be cut, especially since more than 85 percent of the U.S. population also own a cell phone.

So who are these cord cutters? Nielsen says that many of them are likely to be on budgets, with about 59 percent of them earning incomes less than $40,000 a year. They also tend to live in smaller households with only one or two residents at home. And many of these cord cutters get rid of their traditional phone lines after changing jobs or moving. In fact, 31 percent of those who canceled their home service did so after moving.

Based on the numbers, it looks like cord cutters are saving money, too. According to Nielsen, people who have cut the cord use their cell phones 45 percent more than those who have a regular phone at home. But on average they save about $33 per month in a household of one subscriber. That figure is reduced by $6.69 for each additional wireless resident.

Wireless operators have also been offering unlimited calling plans, which they hope will meet the needs of wireless-only users.

"As wireless network quality improves and unlimited calling becomes increasingly pervasive, we expect the trend toward wireless substitution to continue," Alison LeBreton, vice president of client services for Nielsen Mobile, said in a statement. "In a tightening economy every dollar counts, and consumers are more and more comfortable with the idea of ditching their landline connection."

Wireless substitution may only be the beginning for some folks, LeBreton said. Some users may even be tempted to cut the broadband cord, too. While this may be the case for some users, I doubt it will become a widespread phenomenon for a long time.

Right now 3G network speeds using wireless data cards from a carrier are only as fast as a slow DSL connection. And with carriers offering DSL at cheap prices, I'm not sure people will pay a premium for mobility. But as speeds improve and new 4G services like WiMax come on the scene, it might change the story.

Still, going totally wireless isn't for everyone. About 10 percent of customers who have cut the cord have come back to a landline service, according to Nielsen. The study also suggests that most people keep their landlines to get other services, such as satellite TV, DSL service, pay-per-view, or a security system. And about 11 percent of respondents said that they found it cheaper to buy a bundled package that included TV and Internet. While 10 percent said they wanted a landline for safety reasons.