Consultancy firm Frost & Sullivan reports that decreasing mobile voice costs and increasing fixed-line rental costs are driving the mobile-only option in the UK.
In a report entitled "Analysis of voice markets and fixed-to-mobile substitution in the United Kingdom", Frost & Sullivan notes that rapidly falling mobile premiums have been key to narrowing the price gap between mobile and fixed minutes. In 2003, the price premium for mobile usage was 100% or double the price of fixed-line services, but this is expected to decline to 42% in 2007.
Frost & Sullivan research analyst Jan ten Sythoff says in 2007, 49% of voice revenues are expected to come from the mobile network - an increase from 38% in 2000. The total value of substituted minutes is estimated to increase from lb0.9 billion in 2003 to lb1.36 billion in 2007.
Ten Sythoff says pricing is becoming more complex as mobile service providers move from per-minute billing toward bundled minutes and location-based billing. They are also hoping that the shift from prepay to contract packages will materialise to allow them to lock in value and strengthen customer relationships. Though both options are popular, new subscribers are likely to favour prepay packages, he says.
"Though the fixed-line operators` voice business is under pressure as their minutes decline, they are fighting back by targeting some of the same areas as their mobile competitors, such as flat-fee bundles through implementation of wholesale line rentals," says Ten Sythoff.
Apart from pricing issues, fixed-line operators are finding it increasingly challenging to combat the improved coverage and capacity of mobile services and the enhanced functionality of personalised and easy-to-handle handsets. In addition, the report says the roll-out of 3G networks is also spurring the fixed-mobile substitution.
The emergence of wireless broadband has caused a significant decline in the number of households with two fixed-lines and is also downsizing the market coverage of fixed minutes. As digital subscriber lines become operable for both voice and Internet, households with two fixed-lines are expected to decrease by 40% from 1.2 million in 2003 to 0.72 million in 2007.
Since mobile international calls are five times more expensive than the fixed options, there is likely to be limited substitution of fixed international minutes, says Frost & Sullivan.
With most of the fixed-mobile substitution occurring in the consumer market, fixed-line operators are expected to retain their share in the business segment, where end-users prefer free and low-cost internal calls. Business lines are forecast to decline by just over 2% between 2003 and 2007 as opposed to the 5% projection for the consumer segment.
The overall scene in the voice market, therefore, favours the mutual co-existence of both fixed and mobile services. Moreover, the increasing proliferation of complementary voice over IP and non-voice communications such as e-mail, instant messaging and video telephony initiate the integration of mobile capabilities such as push-to-talk and ringtones into fixed-lines.
"Rather than competing and eating into each other`s shares, a synergy between fixed and mobile markets seems to offer a perfect fit," notes Ten Sythoff. "There is a lot of opportunity for video calls on fixed-lines, as well as the convergence of other services such as sending an SMS from mobile to a fixed-line and vice versa."
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