Substitution and Convergence : The future for fixed telephony

This publication has been discontinued on July 19, 2011.

Introduction

An analysis of fixed/mobile and IP substitution effects in the fixed telephony markets in industrialised countries, their impact on incumbent opera-tors' performance and operators' strategies to counter migration away from fixed services.

• For incumbent operators, new services have limited the decline of fixed telephony, but the counterbalancing effect is losing strength
  • Expansion of mobile services has resulted in maintaining a global dynamics in telephony, but as mobile markets are getting mature, growth is slowing.
  • On fixed networks, the decline of voice has been counterbalanced by growing demand for dial-up Internet.With broadband expansion, the decline of fixed net-works is becoming more apparent.
• Incumbent operators have developed strategies to channel migration away from fixed networks
  • Marketing innovations to retain customers (new tariff packages, flat rates, bundles, etc.).
  • New and more content-riche services to stimulate uses, based on integration of fixed, mobile and Internet networks: integrated advanced services (such as sin-gle message services), instant messaging, Wi-Fi, new terminals, etc.
• Upcoming major shift in fixed services?
  • Adapting organisation and business models to the integration process. - Voice over IP: a new challenge for incumbent operators' revenues.

Case studies

Impact of fixed line decline strategies of AT&T, BellSouth, British Telecom, Deutsche Telekom, France Telecom, Korea Telecom, NTT, Qwest, SBC, Sprint, Telecom Italia Telefonica, Verizon

1 MARKET TRENDS

• Decline of fixed telephony vs. rise in mobile and Internet services since the end of the 1990s
  • Fixed, mobile and broadband subscribers in industrialized countries
  • Market value trends by segment in the world
  • The impact on incumbent telecom operators: share of fixed telephony in revenues of major incumbent operators, trends in fixed lines and fixed telephony revenues
    • France
    • Germany
    • Italy
    • Japan
    • Spain
    • South Korea
    • United States
    • United Kingdom

2 MEASURING SUBSTITUTION

• Analysis of substitution effects through subscriber bases, traffic and household behaviors
  • Subscriber bases: trends in mobile and fixed subscribers, analogue lines vs. ISDN lines
  • Traffic trends: traffic on fixed networks and mobile networks, impact of dial-up Internet on fixed-line traffic
  • Household spending: average spending in telecommunications services, the "mobile only" option
  • Migration to IP networks in the business data market

3 OPERATOR STRATEGIES

• Major strategic lines of incumbent operators to channel substitution effects and ensure future growth
  • Diversification of activities: rise of mobile activities, broadband strategies
  • Marketing strategies: flat rate offers, advanced services and bundles
  • Convergence, an answer to substitution? Mobile/fixed integrated services, Wi-Fi, instant messaging, VoIP

OUTLOOK

• Challenges of convergence strategies and telecom market outlook
  • How to adapt operators' organisation?
  • Business models - lessons from instant messaging, the risk of VoIP
  • Growth forecasts for the fixed market

FOCUS ON SELECTED MARKET DEVELOPMENTS AND OPERATOR STRATEGIES

• Reasons for decline in fixed telephony
  • the SBC example
• Results of a usage survey - household consumption of communication services and products
  • the French example
• Diversification of activities
  • the BellSouth example
• Access and communications
  • trends in Deutsche Telekom's fixed activities
• Strategy for fixed telephony
  • the Telecom Italia example
• Broadband development and mobile / Internet convergence
  • the KT example in South Korea
• From flat rate offers to integration
  • the France Telecom example

OPERATOR PROFILES 5

• For each operator studied:
  • Subscriber bases (fixed lines, mobile and Internet subscribers): 1999-2003
  • Major operating results (revenues, operating income, net income): 1999-2003
  • Structure of revenues by segment in 2003 and recent major developments
  • Growth trends of revenues by segment: 1999-2003
    • AT&T
    • BellSouth
    • British Telecom
    • Deutsche Telekom
    • France Telecom
    • Korea Telecom
    • NTT
    • Qwest
    • SBC
    • Sprint
    • Telecom Italia
    • Telefonica
    • Verizon

List of contents

Executive summary

1. General introduction

2. Fixed telephony versus mobile and Internet services

• 2.1. Segmental readjustment in the telecommunications market
• 2.2. Impact on telecom operators: revenue and fixed line trends since 1998

3. Measuring substitution phenomena

• 3.1. Substitution complementarity of services
• 3.2. Subscriber base trends
• 3.3. Changes in traffic
• 3.4. Changes in household consumption
• 3.5. Corporate data services: migration to IP architecture

4. Op erators' strategies

• 4.1. Diversification
  • 4.1.1. Mobile services
  • 4.1.2. Broadband
• 4.2. Marketing strategies: flat rates, enhanced services and bundles
• 4.3. Convergence of services
  • 4.3.1. Fixed/mobile integrated services
  • 4.3.2. Wi-Fi
  • 4.3.3. Instant messaging services
  • 4.3.4. VoIP

5. Issues at stake

• 5.1. Changes in company organisation
• 5.2. Business models

6. AN NEX - Incumbent operators' main results and subscriber bases

• 6.1. AT&T
• 6.2. BellSouth
• 6.3. British Telecom
• 6.4. Deutsche Telekom
• 6.5. France Telecom
• 6.6. KT
• 6.7. NTT
• 6.8. Qwest
• 6.9. SBC
• 6.10. Sprint
• 6.11. Telecom Italia
• 6.12. Telefonica
• 6.13. Verizon

List of tables

• Table 1. Bundles: contents of offers from SBC, BellSouth et Verizon (May 2004)
• Table 2. Deutsche Telekom's subscription options for an analogue line (April 2004)
• Table 3. New integrated fixed/mobile services
• Table 4. Wi-Fi offers from slelected fixed operators

List of figures

• Figure 1. Trends in traffic in the United-Kingdom and France, 1999-2003
• Figure 2. Evolution of Telcos' strategy
• Figure 3. Fixed and cellular global subscriber bases, 2000-2003
• Figure 4. Telecom operators' fixed telephony revenues in Europe and the USA , 1998-2003
• Figure 5. Fixed and mobile density in industrialised countries , 1996-2003
• Figure 6. National fixed and mobile traffic in the United Kingdom, 1998-2003
• Figure 7. Voice and Internet traffic on the fixed network in France, 1999-2003
• Figure 8. Fixed telephony as a share of telecom operators's total revenues
• Figure 9. Structure of the global telecom services market, 2000-2003
• Figure 10. Global telecom services market, 2000-2003
• Figure 11. Global fixed and mobile subscriber bases, 2000-2003
• Figure 12. Relative growth of mobile services in the overall telecom services market, 2003-2007
• Figure 13. Broadband subscribers in industrialised countries, end 2003
• Figure 14. Share accounted for by fixed telephony in the results of selec ted operators, 2003
• Figure 15. Average revenue per minute of fixed communication in the USA,1992 2002
• Figure 16. Average price for a call in Europe, 1998 - 2002
• Figure 17. Operators' main lines in the USA and Europe, 1998 2003
• Figure 18. Telecom operators' fixed telephony revenues in Europe and the USA, 1998-2003
• Figure 19. Fall in fixed telephony revenues: the case of SBC
• Figure 20. Fixed lines and mobile subscribers in industrialised countries, 1997-2003
• Figure 21. Fixed and mobile density in industrialised countries , 1996-2003
• Figure 22. Analogue and ISDN lines in major European countries, 1999-2003
• Figure 23. Increase in analogue and ISDN lines in Germany, 1999-2003
• Figure 24. National fixed and mobile traffic in the United Kingdom, 1998-2003
• Figure 25. National fixed and mobile traffic in France, 1999-2003
• Figure 26. Voice and Internet traffic on the fixed network in France and the United Kingdom, 1999-2003
• Figure 27. Average monthly household expenditure on telecom services in the USA, 1995-2002
• Figure 28. Mobile phone only option in Europe, 2002
• Figure 29. Mobile phone only option in the USA, 2000-2001
• Figure 30. Fixed and mobile budgets in French households
• Figure 31. Non-subscribers to fixed services
• Figure 32. Breakdown of data service revenues by type of service in the 5 major European countries in 2002
• Figure 33. Data service revenue trends in the 5 major European countries between 2001 and 2002
• Figure 34. Fixed telephony: operators' main lines of action
• Figure 35. Mobile services as percentage of total revenue, 1998-2003
• Figure 36. Telecom operators' DSL lines, December 2001 March 2004
• Figure 37. Incumbent operators' shares of the broadband end market
• Figure 38. BellSouth's revenues from fixed services, 2001-2003
• Figure 39. Changes in the number of BellSouth lines (excluding wholesale lines), 1st quarter 2003 1st quarter 2004
• Figure 40. Fixed telephony flat-rate spread (number of subscribers to flat-rate offer) at Deutsche Telekom, France Telecoms and Telecom Italia, 2000-2003
• Figure 41. Subscribers to RBOC bundles, 4Q02-1Q04
• Figure 42. Average spending on fixed telephony in the USA: bundled versus other subscribers, 3Q03-4Q03
• Figure 43. Deutsche Telekom's fixed telephony revenues, 2001-2003
• Figure 44. Access revenue levels for Deutsche Telekom: volume and value effect
• Figure 45. Telecom Italia's wireline financial performance, 2000-2003
• Figure 46. Structure of Telecom Italia's wireline revenues in 2003
• Figure 47. Growth analysis of Telecom Italia's wireline activities in 2003
• Figure 48. Telecom Italia's broadband customers, 2001-2004
• Figure 49. KT: Revenue structure, 2000-2003
• Figure 50. KT: Internet revenues and subscribers, 2002-2003
• Figure 51. ADSL and VoIP subscribers to Yahoo!BB in Japan, August 2003- January 2004
• Figure 52. Internal restructuring of Telenor in 2003

List of boxes

• Box 1. Factors of change in fixed telephony: the case of SBC
• Box 2. Fixed-to-mobile substitution in France: results of the IDATE survey, USE-IT
• Box 3. Diversification of activities by RBOCss in the USA: the case of BellSouth
• Box 4. Fixed communications and access: Deutsche Telekom revenue trends
• Box 5. Telecom Italia's strategy in the fixedd telephony market
• Box 6. Growth of broadband and fixed/mobile convergence in Korea. Main developments and the incumbent operator's strategy
• Box 7. Instant messaging: services and players
• Box 8. France Telecom's growth strategy in the fixed market: from flat rate to integrated operator model

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