Press release: Vodafone accelerates mobile operators' onslaught on fixed voice revenues

November 2005 – Vodafone’s newly enhanced ZuHause home zone service in Germany is one of a growing number of examples of mobile operators aggressively targeting fixed voice revenue, according to a new report, Accelerating Fixed-Mobile Substitution: detailed operator case studies, published by Analysys, the global advisers on telecoms, IT and media.

“Vodafone’s ongoing development of the ZuHause home zone voice service is significant for the German market and the mobile industry in general,” says report author Dr Mark Heath. “With its unrivalled global presence, large customer base, strong brand and marketing resources, Vodafone could have a major impact on fixed operators worldwide if it launches similar initiatives in other markets.”

According to the report, the majority of voice traffic in developed markets still resides on fixed networks and mobile operators have a great opportunity to attract this to their networks. “We’re seeing mobile-only operators leading the assault,” says co-author Dr Alastair Brydon. “For them, the business justification for driving fixed–mobile substitution, including the complete removal of fixed PSTN services, appears compelling.”

The report identifies a wide variety of tactics that are being effective in achieving fixed–mobile substitution. For example, home zone services launched in 1999 have been central to O2 achieving the highest ARPU of all German operators. “A key benefit of home zone services is that they allow mobile operators to compete with the prices of fixed network voice services in the home, while maintaining a substantial price premium for mobility elsewhere,” says Heath. Home zone Internet access services, such as O2’s Surf@Home and Vodafone’s ZuHause Web, will face a number of barriers in competing with DSL. According to Mark Heath, “The combination of a home zone voice service with naked DSL for broadband Internet access could be the compelling solution for the home.”

Heath also points out that cellular home zone services can have significant advantages over converged fixed–mobile voice services, such as BT’s UMA-based BT Fusion service in the UK. “The O2 Genion home zone service can be used by contract customers with any mobile handset. It offers both a fixed number and a mobile number, and calls are cheap both to fixed network numbers and other mobile networks.”

Beyond home zone services, a wide variety of other approaches can be adopted to drive fixed–mobile substitution, including usage-enhancing prepaid and postpaid tariffs, migration of prepaid users to contracts, voice service enhancements (e.g. with IMS), wireless Internet access and promotion. For example, Telefónica Móviles has undertaken a major programme of migrating prepaid tariff customers to contracts. The proportion of prepaid customers has fallen significantly, from 69% in December 2001 to 49% in June 2005, with a nine percentage point decline during 2004 alone. In the first six months of 2005, voice ARPU increased by 28%. “While the objective of the programme was not explicitly to accelerate fixed–mobile substitution, it has led to significant growth in mobile usage and ARPU, while fixed network usage has declined substantially”, says Mark Heath.

Accelerating Fixed–Mobile Substitution: detailed operator case studies presents examples of both mobile-only and integrated fixed–mobile operators in Western Europe and the USA, which demonstrate a variety of ways for mobile operators to grow their mobile usage and revenue and stimulate fixed–mobile substitution. Companies profiled in the report include 3, O2, Sprint Nextel, Telefónica Móviles, TIM and Vodafone.