Because large business customers are much larger and more geographically concentrated than large residential customers, business communications services tend to be more competitive than residential communications services. Nonetheless, from 1980 to 2007, business lines rose from 25% to 37% of public switched telephone lines of larger U.S. incumbent local-exchange telephone companies.[1] Over that same period, the share of manufacturing employment in employment outside of agriculture, mining, and forestry (non-primary-sector employment) fell from 20% to 10%. Employment in various service industries increased. Service industries purchase more communications services than traditional manufacturing industries. This structural shift toward businesses that demand more communications services probably at least partly explains the increasing share of business lines in incumbents’ telephone service.
Aggregate demand for business telephone lines has been more robust than aggregate demand for residential telephone lines. Incumbent providers’ line counts for both classes of lines grew through the end of the twentieth century, then declined. But the growth was greater for business lines and the decline, less. Residential telephone lines per household was 0.94 in 1980 and 0.84 in 2007. Business telephone lines per non-primary employee, in contrast, was 0.27 in 1980 and 0.41 in 2007.
Residential telephone growth prior to 1980 came up against economic and political constraints. The share of households with telephone service grew from 33% in 1920 to 92% in 1979. Possibilities for growth through providing residential telephone service to household that didn’t have any service were thus mostly exhausted by 1979. The number of telephones per telephone household grew from 1.1 in 1920 to 1.8 in 1979. The Carterfone decision in 1968 formally allowed competition in the provision of end-user telephone equipment.[2] Then the AT&T Modified Final Judgment took Bell Telephone companies out of the telephone equipment manufacturing business. Thus selling end-user equipment (telephones) became less attractive to telephone companies.
Business telephone growth prior to 1980 benefited from structural economic change. As early as 1902, many businesses that used telephone service had installed private branch exchanges.[3] Yet in 1900, about a third of the workforce was engaged in agricultural pursuits. Business telephones per non-primary-sector worker rose from 0.14 in 1920 to 0.47 in 1979. That increase occurred in conjunction with agricultural employment falling from 29% of the workforce to 4% of the workforce. The share of manufacturing employment was about the same, so the employment shift can be broadly understood as a shift from agricultural employment to service-sector employment. Service-sector employment growth has been a constant for business telephone service growth across the twentieth century.
Data: U.S. telephone and economic structure statistics, 1920 to 2007 (Excel version).
[1] See the all – summary worksheet in the data workbook. These statistics are for local-exchange telephone companies providing service prior to 1996 (incumbent LECs ( ILECs)) meeting the FCC reporting requirements for ARMIS report 43-08. The relevant requirement is revenue greater than a revenue threshold that was $100 million in 1992 and $138 million in 2007.
[2] After the Carterfone decision, subsequent regulatory battles delayed the mass-market sale of non-telephone company telephones for a decade. Non-telephone company telephone sales amounted to about 1 million telephones in 1978, the first year of mass-market availability, and were expected to reach 2 million in 1979. See Brock, Gerald W., The Telecommunications Industry: The Dynamics of Market Structure (Cambridge: Harvard University Press, 1981) p. 249. Thus aggregate telephone-company telephones represented at least 99% of total installed telephones through 1979.
[3] In New York City about 1900, more operators were employed at private branch exchanges than in telephone company offices. See Census Bureau, Telephones and Telegraphs, 1902, p. 49.