Fixed operators fight back against fixed–mobile substitution

Analysys:

• Fixed operators have a significant opportunity to halt and even reverse line substitution, with innovative tariffs, new promotions and advanced fixed-line services

• Stemming migration of voice traffic will prove more difficult; operators should avoid putting all their efforts into ambitious, but as yet unproven, converged fixed–mobile services

• Report highlights the effectiveness of defensive tactics that prevent line substitution: Telecom Italia (Italy) has been able to increase wireline revenues as it has introduced innovative handset terminals and sophisticated wireless VoIP services

• Belgacom (Belgium) offers tariffs that reduce the baseline cost of a fixed line and cultivate fixed voice usage; Belgacom has also achieved high broadband penetration, offering TV and video on demand services

Fixed operators can buy time to manage their transition from voice-centric to broadband-centric strategies through judicious selection of tactics that prevent fixed-line substitution, but slowing the migration of voice traffic to mobile networks in the short term will be more difficult.

Although the proportion of households with only a mobile phone for voice calls exceeds 20% in several European countries and reaches as high as 33% in Portugal and Finland (where half of all voice traffic now originates on mobile phones), fixed operators have the opportunity not merely to halt line substitution, but also to reverse it. Not only does the removal of fixed lines damage today’s voice revenues, it also limits the prospects for new services such as broadband Internet access and IPTV services. However, even in markets that have experienced significant line substitution, fixed operators can break back into mobile-only households with a combination of low-cost line rental, broadband Internet access, TV and video on demand services, that strongly differentiate from mobile-only services in the home. Many users will be unwilling to remove their fixed lines if this means losing their broadband Internet services.

However, even if they can avoid line substitution, fixed operators still face a threat to their short-term revenues as voice traffic migrates to mobile networks. The report demonstrates a strong correlation between the pricing and usage of fixed and mobile networks, pointing to the importance of fixed tariffs in defending against substitution by mobile.¹

Several fixed operators have restructured their tariffs to discourage users from relinquishing their fixed lines and to encourage them to make as many fixed calls as possible. For example, Belgacom offers a low-cost line-rental option and a variety of free and bundled voice-minute schemes. However, he also points out that this approach will only go so far, as mobile tariffs become increasingly affordable: “Operators risk destroying the value of the voice market if they are over-competitive. More: Accelerating Fixed–Mobile Substitution: detailed operator case studies Publ 20060110