With the growing proliferation of mobile phones more than 12pc of European households are now “mobile only”, says leading comms analyst Ovum, representing a major threat to fixed line operators if more and more users decide to “cut the cord” and go mobile only as evidenced in regions like Scandinavia.
The use of mobile instead of fixed phone for calls or access is called fixed to mobile substitution (FMS). FMS is potentially a massive threat to fixed operators – there would be no one to serve if users decided to ‘cut the cord’ and go ‘mobile only’. In the developed markets, few users are ‘cutting the cord’, evidenced by the relatively stable number of lines in the Western economies.
However, many new users are going ‘straight to mobile’. Actually a lot of them: about 12pc of the EU households are ‘mobile only’ according to a recent EU commissioned survey. This figure varies widely among countries: from 4pc in Germany and Sweden, 6pc in the UK, through to 16pc in France, to a massive 29pc of households in Finland that use mobile as their only access method.
More worryingly for fixed operators is call substitution, where users with both fixed and mobile phones make an increasing proportion over their mobile lines. Not only does this trend deprive fixed operators of call revenue, but it could lead to subscribers cancelling the fixed line subscription, and a total loss of the subscriber and the associated line rental revenues as well.
According to Ovum analyst Angel Dobardziev the worst is yet to come. “The key factor that has influenced the migration of traffic to mobile is the decline in the mobile prices at a much faster pace than the fixed. This has meant that for users, the mobile premium is much lower, and they have felt they could afford more calls over the more convenient mobile handsets.
“Here lies the problem for fixed operators: mobile prices are set for a further decline (faster than fixed) in the years to come. Falling equipment prices, intensifying competition among mobile operators, as well as the capacity increase that 3G networks will bring, will all drive mobile prices down. Only cuts in mobile termination rates will act as minor brakes to the slide in mobile tariffs.
“With the difference between fixed and mobile prices much lower, users will make more calls over the more convenient mobile handsets. Many, particularly the cost conscious, will question the need and the expense of their fixed line, and some will ‘cut the cord’.
“Some would dismiss this scenario as unrealistic. You only have to look to Eastern Europe to see the evidence. Lituevos Telekomas, a Baltic incumbent fixed operator, saw a 16pc decline in its fixed lines in the past year. Most other Eastern European incumbents saw a decline in their fixed lines of between 2-3pc in the same period. The shrinking mobile premium was the key: mobile tariffs declined under competition while fixed prices remained stable due to the late onset of liberalisation. Price sensitive users voted with their feet,” Dobardziev reckons.
However, according to Dobardziev, fixed line operators are far from defenceless and there is more they can do to prevent further decline. Unfortunately many don’t realise how high the stakes are.
He said: “We were surprised at the low priority given to FMS by fixed operators we surveyed in a recent study. Surprised, because the stakes couldn’t be much higher. We estimate that if UK households were to follow their Finnish peers, and 29pc of them went mobile only, BT would lose £1.1bn sterling of annual revenues.
“Fixed operators’ defensive strategy against FMS will consist of neutralising the drivers that push users to mobile while reinforcing the barriers. Price is an important factor, but not the only one. Fixed operators will have to come closer to mobile operators on convenience and handset functionality while emphasizing their advantages in price and quality. They will have to exploit the fact that Internet use is closely tied to the fixed line and cement the position of the fixed line as a home institution.
“Overall, there is a lot fixed operators can do to prevent access substitution and greatly slow down call substitution. But they must act now, as there is always a time lag in user perceptions and reactions to any changes. Delaying action until FMS is seriously hurting revenues could mean leaving it until too late to turn back the tide,” Dobardziev warned.
By John Kennedy