Residential Telephony Past its Sell-by Date - Or is it?

Frost: Residential telephony is the core revenue generator for many incumbent service providers in Asia Pacific. This mainstay business has since been threatened with the introduction of mobile communications and VoIP (Voice over Internet Protocol). With sound understanding of their markets and value-added service (VAS) offerings, service providers would however be able to mitigate the decline in residential telephony revenues, or even achieve growth.

Revenues in this industry - covering 13 major Asia Pacific economies - reached its peak in 2005 at USD51.58 billion, with a subscriber base of 415.1 million. While subscriber base is forecasted to grow at a CAGR (compound annual growth rate) of 2.3 percent (2005-2012) to reach 488.1 million in 2012, total revenues from residential telephony is expected to wane henceforth to be worth only USD45.0 billion by end-2012.

While most Asia-Pac countries are past their peak in residential telephony, selected markets characterized by large population and low household penetration rates, such as China, India, Indonesia, the Philippines and Thailand are still experiencing growth, explains Sin Siew Teyew, head of telecoms research at Frost & Sullivan. These countries are however typically restrained by underdeveloped infrastructure and relatively low ARPU (average revenue per user) levels.

On the other hand, certain pockets for revenue growth still exist in the more mature residential telephony markets across the region. While revenues from voice are declining, there is still potential for growth in other portions of the business such as VAS and interconnection. Service providers would however need to understand market peculiarities and demands well.

The threat of fixed-mobile substitution (FMS) is significant in advanced broadband markets where it affects the ARPU, while IP telephony affects the subscriber base. However, in markets with high mobile and low broadband affordability, FMS usually affects ARPU and subscriber base, resulting in revenue loss from end users and hampering the potential for higher growth.

End users in high mobile and broadband penetration markets rely less on public switched telephony network (PSTN). Users would still however maintain the subscriptions for broadband access, explains Teyew. In countries with low broadband penetration, end users seem to have higher preference for mobile phones for voice communications and are prepared to do without traditional residential telephony altogether.

Service providers need to invest significant effort to prevent residential telephony from declining. Improving VAS or increasing the interconnection rates is likely to impede the decline in revenues or subscribers in the short- to medium-term. In the long-run however, service providers would almost certainly need to accept IP telephony as well.

Asia Pacific Residential Telephony Market Publ 20060801