Fixed-mobile substitution: A reversal of fortune for wireline operators

Martin Scott and Terry Normanby Martin Scott and Terry Norman, Analysys Mason

As the size of Web content downloads increases, mobile customers are increasingly accessing the Internet through the fixed network--which offers fixed operators the opportunity to extract revenue from mobile customers.

Already a large percentage of mobile broadband activity occurs in the home or office. In our Connected Consumer survey, 72 percent of mobile broadband subscribers in Europe and 79 percent in the United States said they used the service mostly, or solely, at home or work. And we expect this figure to increase with customers downloading 90 percent of mobile data indoors by 2015. Our research also found that a significant share of handset-based data consumption occurs while in the home, with most mobile applications being used more frequently in the home than outside it (see Figure 1).

This indoor consumption of mobile data presents a unique opportunity for fixed operators. Indoors, mobile data consumers most commonly access Web content via WiFi connected to DSL, downloading a large part of their mobile data consumption via the fixed network. Fixed operators can analyse consumers' communication, identify mobile devices (laptops, smartphones, tablets etc.), and push fixed offerings, such as video, to mobile customers.

The concept behind establishing the fixed operator's relationship with the mobile customer is fairly straightforward. The fixed operator brokers the video service between the content provider and the mobile customer, taking a share of the revenue. Deep packet inspection/software packages that enable the fixed operator to offer content to the customer and manage charging are already available.

Analysys Mason figure 1

Once the relationship with the customer is established, the fixed operator can continue to broker the valuable content provision even when the customer moves back onto the outdoor network by encouraging the mobile customer to download an appropriate application. Of course this is not strictly reversing fixed-mobile substitution because the services are identical. The substitution of fixed services by mobile is still taking place, the change is in who collects the revenue.

To stop their revenue taking a hit, mobile operators need to develop a spoiling strategy. Two options available are: acquiring fixed assets so they can offer fixed services to their mobile customers; or offering femtocells to customers and using the femtocells' IP security to ensure the fixed operator cannot gain access to them.

Terminating devices such as smartphones consume less power when communicating with femtocells than with WiFi routers, which should mean that customers prefer femtocell--but the high price deters many consumers from installing them. One way to encourage the take-up of femtocells is for the mobile operator to cover the costs--as SoftBank Mobile in Japan has done. These costs can then be recovered through a 12-24-month contract.  Mobile operators need to act quickly, however, if they want to stop this current reversal of fortune in its tracks.

Martin Scott is a Senior Analyst and Terry Norman a Principal Analyst at Analysys Mason. Both are guest columnists for FierceTelecom.