Mobile Operator Strategies for Fixed Broadband

• Do mobile operators really need to offer fixed broadband services, and why? What are the benefits?
• What are the practical technology options available to a mobile operator wishing to deliver fixed broadband access, and which is the most appropriate in the short-term? The report evaluates cellular (HSPA and 3G LTE), WiMAX, DSL and cable technologies.
• Given that DSL services can be implemented in different ways, for example through resale, bitstream access and LLUB, what should mobile operators do? How do the economics of the different options stack up?
• What other factors must mobile operators consider in order to implement a successful fixed broadband service?

0 Summary

1 Mobile operators must decide whether and how to offer fixed broadband services

2 There is strong justification for offering fixed broadband services, if they can be delivered profitably

2.1 In an increasingly competitive environment, many mobile operators are failing to achieve significant revenue growth

2.2 A growing number of mobile operators offer fixed broadband services

2.3 Fixed broadband services can benefit mobile operators in several ways

2.4 Fixed broadband services must generate significant revenue and must be delivered profitably

2.5 Mobile operators need to achieve good take-up of fixed broadband if they are to improve ARPU and churn significantly

3 DSL is the best short-term option for broadband services

3.1 Mobile operators have the choice of several technologies for delivery of fixed broadband services

3.2 W-CDMA and HSPA could be used now to offer Internet access but have limitations in performance and cost

3.3 3G LTE may be able to match the capability of current DSL services but will not be widely deployed before 2009

3.4 The business case for WiMAX is weak in developed markets

3.5 DSL is the best way to provide high-performance fixed broadband services immediately

3.6 Cable technologies represent an alternative to DSL but lack the same coverage and regulation

3.7 Mobile operators need to keep their options open for the longer term

4 Options for DSL implementation include bitstream access, LLUB, partnership and acquisition

4.1 Mobile operators can implement their own DSL services in various ways

4.2 Resale is simple but offers little scope for service differentiation or profit

4.3 Bitstream access allows flexibility in service design and requires limited investment but profit margins may be small

4.4 LLUB can achieve higher profitability than other DSL solutions but involves greater investment and risk

4.5 Partnering with or buying an existing broadband service provider enables rapid entry to the broadband market

4.6 For mobile operators offering DSL, the best short-term solution depends on their size and market characteristics

5 Operators must appeal to the mass market with strong marketing of attractive broadband services

5.1 Mobile operators need to attract broadband customers by focusing on service differentiation rather than price competition

5.2 High-profile marketing will be necessary to achieve significant take-up of broadband services

5.3 Offering fixed voice services can counter the threat from fixed operators but may have an impact on mobile usage

5.4 Mobile operators must avoid alarming customers by presenting them with a single large bill

5.5 The prospects are bright for mobile operators that embrace the opportunities in fixed broadband services now

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Figures and tables

Figure 0.1: Total annual cost of delivering DSL services by LLUB and bitstream access and number of exchanges that it is profitable for a large mobile operator to unbundle

Figure 0.2: Total annual cost of delivering DSL services by LLUB and bitstream access and number of exchanges that it is profitable for a small mobile operator to unbundle

Figure 2.1: Voice ARPU for selected mobile operators in major Western European markets, June 2004 to December 2006

Figure 2.2: Non-voice ARPU for selected mobile operators in major Western European markets, June 2004 to December 2006

Figure 2.3: Household penetration of broadband services in selected countries in Western Europe, September 2001 to September 2006

Figure 2.4: The impact on Vodafone UK’s overall ARPU of various levels of take-up and monthly fee for the Vodafone At Home service, based on the quarter ended September 2006

Figure 2.5: The impact on Vodafone UK’s churn of various levels of take-up of the Vodafone At Home service, based on the quarter ended September 2006

Figure 3.1 Impact of pricing and monthly usage on revenue per megabyte for HSPA Internet access

Figure 3.2: Comparison of maximum monthly usage per user that could be supported profitably by typical implementations of W-CDMA, HSPA and 3G LTE, for monthly revenues of EUR15 and EUR25

Figure 3.3: Western European broadband subscribers, 2006-10

Figure 4.1: Average monthly cost per broadband subscriber for a typical DSL service in the UK, using bitstream access and LLUB

Figure 4.2: Total annual cost of delivering DSL services by LLUB and bitstream access and number of exchanges that it is profitable for a large mobile operator to unbundle

Figure 4.3: Cost per broadband user per month for a large mobile operator delivering DSL services by LLUB and bitstream access

Figure 4.4: Total annual cost of delivering DSL services by LLUB and bitstream access and number of exchanges that it is profitable for a small mobile operator to unbundle

Figure 4.5: Cost per broadband user per month for a small mobile operator delivering DSL services by LLUB and bitstream access

Table 2.1: Examples of mobile-only operators offering fixed broadband services

Table 2.2: EBITDA margins for selected T-Mobile operations, quarter ending June 2006

Table 3.1: Evaluation of technologies that could be used to deliver fixed broadband services for mobile operators

Table 3.2: Evaluation of 3G technologies that mobile operators might use to deliver Internet access services

Table 4.1: Comparison of mobile operators’ options for offering DSL services

Table 5.1: Examples of mobile operators’ pricing for bundled fixed broadband services, February 2007