The shift of fixed line minutes to the mobile network is steadily gathering pace, prompting mobile operators to target fixed voice minutes. As fixed to mobile substitution accelerates, the fixed line industry is being provoked into re-examining its competitive strategy.

For both the fixed and mobile industry, wireless LAN technology is seen as a powerful tool that can be leveraged to boost revenues and reinforce market advantage. However, wireless LAN is also being identified as a technology that can bridge these two sectors, driving convergence.

Symptomatic of the intensifying speed of fixed-mobile substitution over the past two years has been the steep decline in fixed lines and an even sharper fall in fixed line minute volumes in Europe. In 2003, total fixed line minutes fell by almost 5 per cent, while the number of fixed lines decreased by 500,000.

"The major drivers for fixed to mobile substitution include increasing mobile voice competition, mobile saturation, 3G capacity and the emergence of location-based charging," notes Frost & Sullivan ( analyst Jan ten Sythoff.

"The market is, however, up against a number of restraints, such as the growing fixed line competition, pricing, as well as limitations of a mobile, such as coverage and voice quality," he cautions.

Consumer and business markets have shown markedly different responses to substitution and convergence. Consumers have embraced substitution more wholeheartedly as it promises savings on fixed line rental costs.

For corporates, the business case for fixed line substitution is not as clear. Concerns over reliability, coverage and PBX functions have factored into their more guarded reaction to fixed line substitution. While the wireless office has shown promise in some segments of the business market, operators have been slow to capitalise on this opportunity directly.

As competition escalates and prospects for voice revenue growth become more limited, carriers of all types are being compelled to offer new services to expand revenues and reduce customer churn. Although previously, the return on investment was insignificant, a changing competitive arena has now required carriers to do more.

Location-based billing is projected to become an effective instrument for mobile operators to drive substitution. Converged services, particularly in the business market, are gaining importance. A number of integrated operators are already offering converged solutions. This is expected to facilitate a raft of added customer benefits, open up the likelihood of providing new services and develop voice usage in the enterprise.

Ultimately, fixed operators have to devise means to shield their voice traffic or try to capture share from the mobile market. Mobile operators, in turn, need to prioritise wireless data growth, but there are considerable opportunities for substitution.

In regions with strong mobile competition, pushing substitution is anticipated to cause market expansion and improve mobile revenues. In less competitive mobile markets, in contrast, driving substitution could trigger unwanted price attrition.

The success of new wireless data applications is poised to profoundly impact the rate of substitution. "The whole telecommunications market is expected to be faring better if 3G takes off, offering a new revenue stream for mobile operators. Fixed operators are likely to benefit as mobile operators do not target their markets," says Mr ten Sythoff. In time, however, Frost & Sullivan believes that mobile operators are likely to look to fixed voice for new growth opportunities.

If you are interested in a summary of this research service providing an introduction to the European Fixed-Mobile Substitution industry, please send an email to Kristina Menzefricke, Corporate Communications at with the following information: full name, company name, title, contact telephone number, email. Upon receipt of the above information, the summary will be emailed to you.

Title: Fixed-Mobile Substitution
Code: B283


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For further information, please contact:

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Published on: 12:00AM on 22nd March 2004