Fixed telephony services and their operators, especially the incumbents, who have hitherto derived a significant share of their revenues (and their profits!) in this segment, seem to have reached a turning point in their history.
For several years, there has been a slowdown in the growth rate for fixed-line traffic and the accompanying revenues in all industrialised countries. Most recently, there have even been some cases of negative growth. The decline is also having an ever-stronger impact on the subscriber base, chiefly because of the substitution trend towards mobiles: appreciable in Western Europe, this phenomenon is also to be observed in the emerging countries (notably Eastern Europe) where cellular services have made up for the deficiencies in the fixed sector to such an extent as to lower still further an already poor fixed penetration rate.
Confronted with this situation, incumbent operators have managed to rise to the challenge by resolutely involving themselves, in turn, in the mobile sector and thus recapturing subscribers and traffic they lost in the fixed-line segment, even though liberalisation has provided new entrants with an opportunity to acquire a share of these markets. Overall, operators' total fixed and mobile traffic has continued to grow rapidly at least until 2002, while their revenues, obviously affected by the price pressures brought about by competition in fixed services, have increased as a result of high mobile tariffs. Moreover, in regard to operating profitability, it has been possible to maintain a comparatively high margin in fixed telephony, and despite investments and therefore the accompanying amortisation in the case of cellular networks, break-even point in the mobile sector was reached fairly quickly.
Furthermore, fixed traffic has benefited from the development of narrowband Internet access, which in 2003 accounted for between a third and a half of European incumbents' fixed traffic. Nevertheless, in terms of revenue, fixed-mobile substitution results in a gloss of earningsh for operators, as the average price of a dial-up minute is substantially lower than that of a minute of voice communication. In addition, the switch to broadband access means another change in the situation, and narowband Internet traffic, in turn, appears to be on the decline in a great many countries.
Other more specific phenomena add to the two trends mentioned above, such as the replacement by e-mail of fax messaging, which accounted for a significant share of switched traffic in the USA, and of international calls.
Operators have adopted a variety of approaches to countering the threat of stagnant revenues, brought about in large part by the decline in fixed telephony. The first measure was to invest in areas that appeared to be strong growth vehicles. Mobile services therefore constituted the first market towards which operators were able to redeploy their efforts. While this measure was in the main crowned with success, growth in the cellular markets is losing steam and the prospects of increased competition (larger presence of MVNOs, new 3G operators, etc.) give rise to fears of a further fall-off for established operators. The other direction of redeployment taken by the incumbents is towards the Internet, and towards broadband in particular. But the drag effect in this case is more limited than in the case of mobiles with a share of total telecom service revenues still restricted (under 7% by value in Europe) and far livelier competition.
- The first approach involves tariffs. It begins with a rebalancing that gives increasing weight to phone subscriptions, in particular with the proliferation of flat rate offers. With the goal of reducing the uncertainty for customers over how much they will be billed at the end of the month, this approach also aims to make telephony an access market, in other words one which is proportionate to the number of active lines, similar to the broadband market. Also to be noted is the impact that the regulator can have when laying down pricing rules, which will provide more or less positive incentives for use of the fixed network.
- A second approach involves bundled service packages. A perfect case in point here is the RBOCs who have focused on marketing packages that combine a subscription (including flat rate for unmetered local calls), a long distance service (a market from which they were excluded for a long time) and can extend to mobile service, broadband access and video offers (through partnerships with satellite TV operators). The direct impact of bundling can involve a drop in ARPU due to the discount prices being offered but benefits can be found in the fact that operators will be billing for several services and, above all, apparently cementing their customers' loyalty, which reduces the churn rate. There also exist what can be called virtual bundles which a few operators have been testing. They offer a telephone service at rates comparable to those applied to fixed telephony, by applying a form of cell-based billing called Home Zone (see BT's Bluephone project). In the long term, this approach could well benefit from the introduction of Wi-Fi enabled handsets.
- A third approach involves the design of new handsets which will help boost traffic over the phone line, for instance videophones that will be able to take advantage of progress in signal processing, of the possibilities of interoperability with webcam-based applications on PC, and of a video-telephony offering that 3G networks are expected to enable.
- Finally, there is a more complex strategy that covers all the others, seeking to take advantage of the combination of the different networks (fixed analogue plus DSL plus wireless broadband plus TV plus cellular), of voice-data-image signals, and of synchronous/asynchronous transmissions to invent new services.
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