The Future for Fixed-Mobile Substitution: options for fixed and mobile operators

Mobile operators have been focusing heavily on increasing their revenue through new mobile data services, but they must not lose sight of opportunities within the voice market, which generates the vast bulk of communication revenue today and will continue to do so in the medium term. The potential to grow voice revenue represents an important opportunity for mobile operators as they battle to reverse the long-term decline in mobile ARPU: some of the growth in voice revenue will come from service innovation but, if significant growth is to be realised, mobile operators will need to target traffic that is currently carried on fixed networks. At the same time, fixed operators must be aware of the potential threat from mobile operators, as well as their own opportunities to provide customers with wireless connectivity.

The Future for Fixed-Mobile Substitution: options for fixed and mobile operators examines the emerging competition between fixed and mobile operators for voice services. It analyses the key drivers that will cause traffic to migrate between fixed and mobile networks, and develops a number of scenarios to explore alternative developments of the fixed and mobile markets. The report uses these scenarios to examine the strategic options for different players - fixed operators, mobile operators, MVNOs and others.

The Future for Fixed-Mobile Substitution: options for fixed and mobile operators answers your key questions:

• How much traffic will migrate from fixed to mobile networks in the next five years, and how quickly will this substitution take place?
• How can mobile operators capture voice traffic from fixed networks and augment their overall voice revenues?
• What actions can fixed operators take to defend their voice traffic and prevent erosion of their existing revenues?
• How will mobile operators’ pricing strategies affect the extent of fixed-mobile substitution?
• What effect will 3G new entrants eager to capture voice traffic from both established mobile operators and fixed incumbents have?
• To what extent should fixed operators and mobile operators pursue the opportunities presented by WLAN, DECT and other wireless technologies, and what impact could this have on fixed-mobile substitution?

Who should read this report?

• Mobile operators and MVNOs: to identify the growth potential of voice services and develop strategies for building their voice revenue business
• New 3G operators: to understand the potential impact of pricing on mobile voice traffic volumes
• Fixed operators: to understand the scale of the threat to their voice revenues from fixed-mobile substitution and develop strategies to defend their voice traffic
• Regulators and analysts: to develop an understanding of the anticipated market dynamics as fixed-mobile substitution increases
• Equipment vendors: to identify opportunities for new products that will be attractive to fixed operators wanting to add wireless connectivity and to mobile operators seeking to compete with fixed offerings

Summary

1 Competition for voice customers will intensify

2 Price and convenience are the key drivers of fixed-mobile substitution

2.1 The relative pricing of fixed and mobile voice services is key

2.2 Convenience becomes a major factor as price differences erode

2.3 Spectrum availability caps mobile capacity

2.4 Conclusive evidence for the effects of mobile usage on health could have an important impact on fixed-mobile choices

2.5 The drivers will affect different types of customer in different ways

3 We have used scenarios to examine the evolution of fixed-mobile substitution

3.1 We have defined three alternative scenarios

3.2 Up to 65 billion minutes of voice traffic could migrate from fixed to mobile networks in 2007

3.3 The scenarios have different implications for players in the voice market

4 The scenario analysis reveals a range of options for the different players

4.1 Integrated fixed and mobile players should either offer integrated services or separate their businesses

4.2 Fixed operators must defend their customer connections and traffic

4.3 Established mobile operators should keep mobile prices as high as possible

4.4 3G new entrants need to win high-end customers for data services and offer them large voice bundles

4.5 Resellers have a range of options

4.6 Different approaches will be tried in different countries

Actions

Annex: Data tables

List of figures and tables

Figure 1.1: Estimated Western European voice market revenues in 2002 - fixed and mobile shares

Figure 1.2: Estimated Western European voice market call minutes in 2002 - fixed and mobile shares

Figure 2.1: Cost per annum of using fixed and mobile services for different levels of daily usage and at different per-minute rates for mobile

Figure 2.2: Price-convenience priorities of the different customer groups

Figure 3.1: Voice service revenues by scenario in 2007

Figure 3.2: Distribution of voice service revenues by scenario in 2007

Figure 3.3: Voice call minutes by scenario in 2007

Figure 3.4: Distribution of voice call minutes by scenario in 2007

Table 3.1: Voice service revenues and call minutes in 2002 and 2007, Status Quo scenario

Figure 3.5: Fixed and mobile voice service revenues 2002-7, Status Quo scenario

Figure 3.6: Fixed and mobile voice call minutes 2002-7, Status Quo scenario

Figure 3.7: Relative price index for fixed and mobile voice services in Germany 2002-7, Status Quo scenario (2002 = 100%)

Figure 3.8: Average annual fixed voice call minutes per line in Germany in 2002 and 2007, Status Quo scenario

Figure 3.9: Average annual mobile voice call minutes per subscriber in Germany in 2002 and 2007, Status Quo scenario

Table 3.2: Voice service revenues and call minutes in 2002 and 2007, Controlled Competition scenario

Figure 3.10: Fixed and mobile voice service revenues 2002-7, Controlled Competition scenario

Figure 3.11: Difference in voice service revenues in Controlled Competition scenario from Status Quo scenario

Figure 3.12: Fixed and mobile voice call minutes 2002-7, Controlled Competition scenario

Figure 3.13: Relative price index for fixed and mobile voice services in Germany 2002-7, Controlled Competition scenario (2002 = 100%)

Figure 3.14: Average annual fixed voice call minutes per line in Germany in 2002 and 2007, Controlled Competition scenario

Figure 3.15: Average annual mobile voice call minutes per subscriber in Germany in 2002 and 2007, Controlled Competition scenario

Table 3.3: Voice service revenues and call minutes in 2002 and 2007, Price War scenario

Figure 3.16: Fixed and mobile voice service revenues 2002-7, Price War scenario

Figure 3.17: Difference in voice service revenues in Price War scenario from Status Quo scenario

Figure 3.18: Fixed and mobile voice call minutes 2002-7, Price War scenario

Figure 3.19: Relative price index for fixed and mobile voice services in Germany 2002-7, Price War scenario (2002 = 100%)

Figure 3.20: Average annual fixed voice call minutes per line in Germany in 2002 and 2007, Price War scenario

Figure 3.21: Average annual mobile voice call minutes per subscriber in Germany in 2002 and 2007, Price War scenario

Table 3.4: Fixed and mobile voice service revenues and traffic in 2007 for the three scenarios

Figure 4.1: Options for players in the voice market

Data file

Those purchasing any option that includes an Excel data file will receive detailed forecasts for the voice communications market under the three alternative scenarios developed for the report: Status Quo, Controlled Competition and Price War. For each scenario, we provide 10 data series, covering the years 2002 to 2007:

• total mobile minutes
• total mobile revenues
• total mobile subscribers
• mobile minutes per subscriber
• mobile voice ARPU
• total fixed minutes
• total fixed revenues
• total fixed lines
• fixed minutes per line
• fixed revenue per line

Figures are provided for France, Germany, Italy, Sweden and the UK, as well as for Western Europe as a whole.