Free article: Fixed operators must face up to the threat of fixed-mobile substitution

While fixed networks still carry the majority of voice traffic today, mobile services can offer greater convenience and are becoming increasingly affordable in many markets. As some mobile operators target fixed voice usage as a source of revenue growth and encourage their customers to dispense with their PSTN services, fixed operators are being confronted by the phenomenon of fixed–mobile substitution that can cause the migration of voice traffic to mobile networks and (in some cases) precipitate the removal of fixed-line services altogether.

The proportion of mobile-only households has already reached 33% in some Western European markets. Indeed, some markets demonstrate the potential for a major shift in the balance of traffic between fixed and mobile networks: In 2004, nearly 50% of all voice minutes in Austria and Finland were originated on mobile phones and in Portugal the figure was even higher (as shown in Figure 1).

Figure 1: Proportions of mobile- and fixed-originated voice calls in selected Western Europe markets, quarter ending December 2004

Figure showing the proportions of mobile and fixed-originated voice calls in selected Western European markets

The prospect of significant numbers of customers relinquishing their fixed lines is a major threat to fixed operators. Fixed mobile line substitution diminishes fixed-voice revenues in the short term, while also limiting the longer-term opportunities for provision of other services (such as broadband Internet and IPTV).

However, even if fixed operators are able to avoid line substitution by employing innovative tariffs, new promotions and advanced services (outlined in a new report Defending Against Fixed–Mobile Substitution: detailed operator case studies), there is still a significant threat to their short-term revenues if voice traffic migrates from fixed to mobile networks.

In response, fixed operators must become increasingly innovative as they defend their businesses against fixed–mobile substitution. Case studies reveal a variety of tactics that can be used to halt, and even reverse, line substitution and slow down the migration of traffic to mobile networks.

While there are many potential tactics to defend against substitution, fixed operators need to consider which of them best fit their own circumstances. All fixed operators will be keen to avoid line substitution; however some integrated operators (with both fixed and mobile operations) may be more amenable towards traffic substitution, if their mobile businesses are in a strong position to benefit.

Defending Against Fixed–Mobile Substitution: detailed operator case studies presents six extensive case studies of both fixed-only and integrated fixed–mobile operators in Western Europe and the USA, which demonstrate a variety of ways for fixed operators to defend against fixed–mobile substitution. They illustrate tariffs, services and promotions that can be used to maintain fixed usage levels and prevent customers from relinquishing their fixed lines. Companies profiled in the report include Belgacom, BellSouth, BT, Elion, France Telecom and Telecom Italia.