Eircom must return to mobile market to survive


22 Jun 2004

Fixed line operators like Eircom, which has been long mooted to be planning a return to the mobile market following the end of a restriction last month, will need to have mobile services in the future if they wish to be financially viable, claims telecoms analyst firm Ovum.

After Eircom sold off its Eircell mobile division to Vodafone, it was prevented from re-entering the Irish mobile market subject to a moratorium that ended only last month. In the months preceding this event, speculation has been rife about Eircom’s plans to re-enter the market, whether as a pure play mobile operator or as a mobile virtual network operator (MVNO) renting capacity from established networks. However, it emerged in recent weeks that Eircom has so far failed to secure a commercial agreement with either O2 or Vodafone.

Eircom was not alone in selling off its mobile network in 2001; other players that divested themselves of their mobile interests included BT, AT&T and PCCW.

However, in a new analysis Ovum reckons that these fixed-only players need mobile in order to stay in the black.

Ovum senior analyst Angel Dobardziev explains: “Despite broadband growth, ‘fixed only’ operators have not only inferior revenue growth to integrated players but poorer margins too.

“In assessing the 2003 revenue growth margins of BT, AT&T, Eircom, Telmex and PCCW, which are some of the most prominent ‘fixed only’ players, we found that on average they recorded a 4.6pc revenue decline and an EBITDA (earnings before interest, taxes, depreciation and amortization) margin of 36pc. By comparison, a selection of similar players in related geographies which have mobile arms had revenue growth of 3.1pc and EBITDA margin of 39pc in the same year.”

According to Dobardziev, the reasons are not purely financial. The three reasons why mobile operations have been elevated from a “nice to have” to a “must have” are: fixed to mobile substitution; fixed to mobile convergence; and the shift towards consumer solutions.

Fixed to mobile substitution (FMS) or the migration of voice calls and access from fixed to mobile, Dobardziev claims, is a trend that will continue to affect fixed operators. “We disagree with those that suggest the threat of FMS will stop once mobile markets reach saturation. All signs leads us to believe that a further decline in the mobile to fixed price premium is very likely, and with it, FMS may only accelerate.”

In terms of fixed mobile convergence (FMC), Dobardziev says such solutions are handy ways to defend against FMS, but operators would need ownership or access to a mobile network to implement it. “We have seen a lot of movement in the FMC space both in the US and Europe this year. Verizon, SBC, Bell South, BT, TDC, and France Telecom are all moving towards FMC services. Should this trend accelerate, and all indications are that it will, ‘fixed only’ (or for that matter ‘mobile only’) operators will be left exposed.”

Dobardziev warns that there is also an increasing trend stemming from both FMS and FMC to move away from offering fixed, mobile or internet services separately towards providing communications solutions that fit the needs of specific customer groups, from residential users to SMEs and enterprises. Mobile is a growing part of the solutions offered to any one of these consumer groups and he warns that one-dimensional operators must seek solutions to remedy this.

Dobardziev says that fixed line operators without a mobile entity have four options. They can buy a license and build their own mobile network; buy an established network operator; become an MVNO and offer branded services; or become a reseller of other network operator/MVNO services.

“The first option is highly risky in conditions of near mobile market saturation, while the other three options are more or less open to operators. The MVNO option is particularly attractive to many. After all, BT and AT&T went for this route in May 2004, and Eircom and PCCW were later are reported to be taking steps to do the same. Whichever one you choose, if you are ‘fixed only’ player, doing nothing may no longer be an option,” Dobardziev warned.

By John Kennedy