AT&T Inc. (NYSE: T) is set to report another solid quarter tomorrow morning, but that comes at the expense of the 1.5 percent of its workforce that were cut recently, thanks to a decline in landline phone usage. (See AT&T to Axe 4,650.)

This was a common theme among U.S. telcos during the first quarter of 2008 as Verizon Communications Inc. (NYSE: VZ) and then Qwest Communications International Inc. (NYSE: Q) both announced similar cuts. (See Qwest Cuts More Jobs and You're Fired, and Verizon Hits 1M FiOS TV Subs.)

Analysts see the trend continuing. "I think it’s inevitable," says UBS AG analyst Guarav Jaitly. "You've got to manage your costs, and headcount on the access line side is a metric they all watch very closely."

Much of the old telco workforce is unionized -- they are very often restricted in just how much payroll they can slash through layoffs, but Jaitly says this has become much less of an obstacle lately. "They've all renegotiated their union contracts to give them more flexibility," he says.

Table 1: Landline Decline

Telcos haven't been able to do much to stop the access line loss. But while Verizon and AT&T often lose a landline customer and gain a wireless customer at the same time, Qwest has to be more creative. Qwest, without a wireless network of its own, partners with other companies, such as DirecTV Group Inc. (NYSE: DTV) for TV services, to provide its customers several services on a single bill. (See Qwest Not Satisfied With Sprint, Qwest Stays Frugal in Q4, and Qwest to Spend up to $300M on FTTN.)

Embarq Corp. (NYSE: EQ), which cut 10 percent of its workforce in December, has resorted to enhancing the landline phone service itself. It recently came out with a new phone that couples a broadband connection to an ordinary kitchen phone to bring news and other information to subscribers without requiring them to boot up a PC. (See Embarq Readies Its 'Fourth Screen'.)

But the landline landslide is likely to continue, as the cost of the service itself -- and the number of features -- is being bested by cable VOIP services and flat-rate wireless plans. "I don't think there is one thing that'’s going to help reverse it," says Jaitly. "I think it's a macro trend that is going to continue."

— Raymond McConville, Reporter, Light Reading