The popularity of mobile broadband access via USB modems has taken mobile and fixed operators in Europe by surprise. Fixed operators are concerned because they are losing market share in the area that has been their major engine of growth; mobile operators are worried because competition in mobile broadband has driven down retail prices to far below cost. This report explains the new dynamics of the broadband market with reference to the cost and retail levers that mobile operators can pull. It also examines the longer-term strategic implications for the fixed industry of facing another round of substitution and those for the future of convergence.

The report provides forecasts of numbers of mobile broadband subscribers in 26 European markets to 2013, breaking subscriptions down into those that are new and substitutive and those that are complementary to fixed. In addition, the report provides snapshots of the price of over 450 mobile broadband services across Europe in 1Q and 2Q 2008.

Mobile broadband: another substitution threat for fixed operators? answers your key questions:

• What is the penetration of mobile broadband now? How far is the growth of mobile broadband limited by cost?
• What will mobile operators do to control costs? To what extent will mobile broadband be substitutive or complementary?
• Which European markets will be most receptive to mobile broadband?

0 Summary

1 Mobile broadband is rapidly taking market share from fixed broadband

1.1 The consumer broadband market is now at a crossroads

1.2 Mobile broadband is known to account for nearly 20% of some broadband markets and is growing fast

1.3 Although prices are not directly comparable, mobile broadband can already appear cheaper than fixed

1.4 There is already evidence of considerable substitution of fixed broadband

2 Network capacity and costs place some limits on the rate of substitution by mobile broadband

2.1 External factors can cause regional differences in mobile broadband take-up

2.2 The mean usage per broadband customer can disguise a low median usage

2.3 MNOs need to dissociate network costs from bandwidth demands

2.4 MNOs can pull a number of retail levers to manage costs

2.5 Fixed broadband costs cannot fall much further, and could conceivably rise

3 Mobile broadband will have profound implications for the strategyof mobile and fixed operators

3.1 Mobile broadband will reduce fixed broadband penetration

3.2 MNOs’ convergence strategies are beginning to shift again

3.3 Fixed broadband players will have to re-invent themselves again

3.4 The outlook for fixed wholesale divisions is mixed

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List of figures and tables

Figure 1.1: Proportion of total broadband subscribers taking mobile broadband compared to that taking DSL in selected European markets, 1Q 2008

Figure 1.2: Comparison of prices for contract mobile broadband and DSL in 26 European markets at 2Q 2008

Figure 1.3: Price of annual contract for mobile broadband as a proportion of per-capita GDP in 26 European markets at 2Q 2008

Figure 1.4: Comparison of spend on mobile voice minutes and price of mobile broadband in 26 European markets at 2Q 2008

Figure 1.5: Premiums for mobile broadband and mobile voice in 26 European markets at 2Q 2008

Figure 1.6: Broadband subscribers in Austria, 1Q 2007-1Q 2008

Figure 2.1: Percentage of households with no fixed service in selected markets, EOY2007

Table 2.1: Availability of main 3GPP advanced wireless technologies

Figure 2.2: Trends in mobile data usage, TDM backhaul costs and ARPU

Figure 2.3: Typical mobile network operating costs per subscriber per cellular sector

Figure 2.4: Typical DSL network costs per subscriber per exchange for full and shared LLUB

Figure 3.1: Mobile modem and datacard broadband subscriptions, new and substitutive and complementary, in Europe, 2006-2013

Figure 3.2: Fixed and mobile broadband subscriptions in Europe, 2006-2013

Figure 3.3: Broadband-equipped sites in Europe, split into fixed-only, fixed and mobile, and mobile-only, 2006-2013

Figure 3.4: Percentage of mobile-only broadband homes, 2013