Press release: Mobile-only operators forced to use fixed networks to boost revenues

October 2007 – The move by Vodafone to purchase Tele2's fixed network assets in Italy and Spain for EUR775 million demonstrates the increasing importance of fixed broadband services in the mobile operator service portfolio.

Some mobile operators have considered offering a complete set of fixed and mobile services using wireless technologies (such as HSDPA and WiMAX), but operators will need both fixed and mobile networks in order to deliver a comprehensive range of services to end users, says Mark Heath, co-author of the report How to Succeed with Fixed-Mobile Convergence.

"Fixed broadband services could generate revenue for mobile operators, at a time when mobile voice ARPU (Average Revenue Per User) is declining and it continues to be difficult to achieve substantial growth in non-voice revenues," Heath argues.

"Bundling fixed broadband with existing mobile services is an immediate opportunity for new revenue and, in addition, can be an effective means of retaining existing customers. Furthermore, the importance of fixed network access for mobile operators will increase as they start to deploy femtocells (or indoor base stations), which depend on broadband connections for backhaul to their mobile networks."

Vodafone offers DSL services through wholesale agreements with Arcor in Germany, and BT in the UK. Following Vodafone's latest acquisition, it can now offer fixed broadband services alongside its traditional mobile services in four of its major European markets.

"It is highly likely that other mobile-only operators will acquire fixed network assets, or establish partnerships or agreements, with fixed operators. However, mobile-only operators that have begun to negotiate partnerships or agreements with fixed operators may need to consider more radical action in order to achieve service profitability," says Heath.

"Broadband services may provide a much-needed revenue boost, but operators must not lose sight of the need to achieve and maintain service profitability in the longer term. Mobile services can offer significant profit margins, but the margins for fixed broadband services may be small. Mobile-only operators that have wholesale agreements with fixed operators, may be unable to offer low-priced fixed broadband services without damaging profitability. Such operators will need to consider alternatives, such as the acquisition of fixed operators or local loop unbundling," he concludes.