Fixed-Mobile Substitution: Cutting the Cord

The global mobile subscriber base reached a landmark on 18 September when the
number of subscribers crossed two billion, according to estimates from Wireless
Intelligence-a GSM Association on Ovum venture. Even as cellular markets in
most developed countries have almost reached maturity, most of this growth has
come from emerging markets like China, India, Eastern Europe, Latin America, and
Africa. The market penetration has reached over 100 percent of the population in
countries like Sweden, Italy, Austria, UK and, more recently, Portugal. Overall,
the cellular industry is expecting to ship around 750 million new mobile phones
this year. The cellular market is forecast to continue to grow at a high rate,
although slower than recent years. According to analyst firm, Ovum, it would
reach three billion subscribers by the end of 2010.

While
millions of the mobile phone subscribers across the world are most likely to be
first time phone users-especially in the developing countries where mobile
services have dramatically increased tele-density-a significant portion of the
growth in cellular industry has come at the cost of fixed-line phones. In an
increasingly dominant trend, a significant number of subscribers are
substituting their fixed phones with mobile phones. And even if subscribers are
keeping their fixed phones, they are less likely to use it to make calls.

According to Keith Mallinson, Yankee Group's wireless global practice
leader, low prices, in-network calling and family plans, all influence the
rising number of people hanging up on the landlines. They are using home phones
less frequently and many are 'cutting the cord' entirely. Mallinson believes
that wireless substitution for wireline residential phone service is a
significant and unstoppable trend. He says that carriers should aim to
capitalize on the movement toward personal communications through one device on
an anywhere, anytime basis rather than resist the inevitable shift away from
wireline communications."

Angel Dobardziev, an analyst with Ovum, says that even though few users are
giving up their fixed phones, as evidenced by the relatively stable number of
lines in the Western economies, many new users are going 'straight to mobile'.
"Actually a lot of them: about 12 percent of the EU households are 'mobile
only', according to a recent EU commissioned survey. This figure varies widely
among countries: from four percent in Germany and Sweden, six percent in the UK,
and 16 percent in France, to a massive 29 percent of households in Finland that
use mobile as their only access method," Dobardziev says.

Some analysts argue that fixed line operators with aggressive broadband plans
can prevent their customers from 'cutting the cord'. However, that too would
not be of much help as fixed-line phones have another threat to deal with-VoIP.
Many fixed line operators today force their broadband customers to pay for fixed
phone subscriptions as well. With VoIP getting popular with the spread of
broadband, consumers are increasingly bypassing the traditional way of making
calls. This trend would further accelerate the fixed-mobile substitution.

The trend seems to dominate the developed markets with historically high
fixed line penetration as well as developing countries like India where
fixed-line penetration is just 4.5 percent. Incumbent fixed-line operators BSNL
and MTNL have regularly reported a drop in their fixed-line base in the recent
years. In fact, India's mobile phone subscriber base surpassed fixed lines in
the year 2004-05. Fixed lines grew by just 4.17 percent against 52 percent
subscriber growth registered by cellular services.

Growth in both developed and developing markets would continue to come from
mobile services. However, while in the developing countries, because of existing
low penetration, the growth would be higher on account of millions of new
subscribers, in the mature mobile services markets, growth is likely to come
from 3G and other advanced wireless services. 3G services would stimulate fixed
substitution even further. The growing tilt in favor of mobile services would
spell doom for fixed-mobile convergence. This is because a low number of fixed
phones would be no incentive for the convergence of fixed and wireless.

Ravi Shekhar Pandey