Accelerating Fixed Mobile Substitution: detailed operator case studies Alastair Brydon and Mark Heath with Katrina Bond Edited by Claire Varley
Analysys Research Fixed Networks and Services Analysys Research Fixed Networks and Services online market intelligence service World Telecoms Marketplace online market intelligence service IPTV: a breakthrough for US telcos? Retail VoIP in Western Europe: forecasts 2005 2010 Fixed Mobile Convergence: opportunities and strategies for the mass market VoIP versus Mobile: forecasts for the future of enterprise voice Fixed Mobile Substitution and VoIP: forecasts for the battle for mass-market voice The Telco Product Portfolio beyond 2010 The Telco Organisational Structure beyond 2010 The Business Case for Carrier Migration to VoIP Viable Business Models Point to Big Opportunities for Public WLAN Emerging Business Models in Voice: the impact of Skype and other private VoIP applications The Business Case for Broadband Entertainment Western European Fixed Telecoms Markets: forecasts 2004 2009 Mobile Networks and Services Analysys Research Mobile Networks and Services online market intelligence service The US Mobile Market: trends and forecasts 2005 2010 Delivering Strategic Benefits with IP Multimedia Subsystem (IMS) The Future of MVNOs in the 3G Era The Western European Mobile Market: trends and forecasts 2005 2010 Product and Service Opportunities from Shortrange Wireless Technologies: WLAN, Bluetooth, UWB and NFC Wireless Voice over IP: technical and commercial prospects The World s Top Ten Wireless Services Retaining Customers and Minimising Churn: strategies for mobile markets Pushing Beyond the Limits of 3G with HSDPA and Other Enhancements The Role and Impact of WiMAX and Proprietary BWA Technologies Making a Success of the Mobile Content Value Chain TV and Video Services on a Mobile Phone: the killer application for 3G? Billing and OSS Analysys Research Billing and OSS Markets online market intelligence service Billing for Mobility: strategies for convergent charging Emerging Charging Architectures for New Mobile Services: understanding and evaluating the available technical solutions Making a Success of Mobile TV and Video Published by Analysys Research Limited St Giles Court 24 Castle Street Cambridge CB3 0AJ UK Tel: +44 (0)1223 460600 Fax: +44 (0)1223 452800 Email: research@analysys.com http://research.analysys.com Analysys Research Limited 2005 Printed in the UK by Victoire Press. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the publisher. ISBN 1 903648 97 1
Contents 0 Summary ix 1 Fixed mobile substitution is a major opportunity 1 1.1 Mobile voice telephony has substantial growth potential and fixed mobile substitution can be an attractive strategy 1 1.2 Cultivation of mobile voice usage is a key factor in achieving fixed mobile substitution 2 1.3 Six mobile operator case studies illustrate a variety of tactics to drive voice usage and achieve fixed substitution 4 2 TIM is driving mobile voice usage with prepaid tariffs 7 2.1 TIM is the leading mobile operator in Italy and, until 2005, operated independently of fixed operator Telecom Italia 7 2.2 TIM has achieved good levels of ARPU with its prepaid tariffs 8 2.3 TIM applies a wide variety of techniques to encourage prepaid customers to make voice calls 10 2.4 TIM is using value-added services to increase the appeal of mobile voice services compared to fixed 13 2.5 TIM could achieve more by focusing explicitly on fixed mobile substitution and exploiting the capacity of 3G 14 3 Telefónica Móviles has migrated many prepaid customers to contracts to stimulate voice usage 16 3.1 Telefónica Móviles is the mobile market leader in Spain, where substantial fixed mobile substitution has occurred 16 3.2 Telefónica Móviles has been the most successful operator in migrating prepaid customers to contracts 17 3.3 Migration has helped to achieve increases of 28% in ARPU and 44% in usage as fixed voice usage has fallen 18 3.4 Contract tariffs have been redesigned to highlight their value for money compared with prepaid and to stimulate calls 20 3.5 Enticing customers from prepaid to contract has required significant focus and promotional effort 23 Analysys Research Limited 2005 Contents
iv Accelerating Fixed Mobile Substitution: detailed operator case studies 4 Sprint Nextel achieves the highest voice usage levels in the world 25 4.1 Sprint Nextel is one of the leading US mobile operators and, despite plans for converged services, is driving mobile voice 25 4.2 Sprint PCS has consistently led voice usage and ARPU in the heavy-usage US market 26 4.3 Sprint Nextel s contract plans encourage high usage of mobile voice and lead to fixed mobile substitution 28 4.4 Sprint Nextel has cultivated a broad spectrum of MVNOs, to help it grow voice usage across all segments 32 4.5 Sprint Nextel push-to-talk services extend the gap between mobile and fixed voice services 34 5 3 UK encourages voice usage with simple contract and prepaid bundles 35 5.1 3 has the largest number of 3G customers in the UK, where fixed mobile substitution still has some way to go 35 5.2 3 has exploited the capacity of its 3G network by encouraging high levels of voice usage 36 5.3 3 focuses on simple any time, any network bundled tariffs 37 5.4 3 replicates the structure of its contract bundles in its prepaid tariffs in order to attract high-value customers 40 5.5 3 could enhance its voice revenue by putting more emphasis on opportunities for fixed mobile substitution 42 6 O2 was an early mover in fixed mobile substitution, using home zone services 44 6.1 O2 is the smallest mobile operator in the German market, where fixed mobile substitution is very low 44 6.2 Genion has been central to O2 achieving the highest ARPU of all German mobile operators 45 6.3 Genion allows O2 to offer call prices similar to fixed rates 47 6.4 The Surf@home service has been introduced to overcome a key weakness of Genion 49 6.5 Service and device developments will further enhance Genion and Surf@home 52 7 Vodafone Germany is now aggressively targeting fixed mobile substitution 54 7.1 Vodafone is a leading operator in Germany, where average mobile voice usage and ARPU are very low 54 7.2 Vodafone is responding to low and declining mobile voice ARPU in Germany by focusing on fixed mobile substitution 55 7.3 Vodafone introduced bundled minute plans in 2004 57 7.4 Vodafone s original home zone voice service did not operate outside the home zone 57 7.5 An enhanced home zone voice was launched in October 2005 58 7.6 Vodafone has also launched a home zone Web service, based on its 3G datacard, but is taking a risk with the pricing 59 Contents Analysys Research Limited 2005
Accelerating Fixed Mobile Substitution: detailed operator case studies v 8 Mobile operators must take a position on fixed mobile substitution 62 8.1 With a compelling case for fixed mobile substitution, mobile-only operators will lead the assault on fixed networks 62 8.2 While integrated operators can offer fixed Internet access, a fixed mobile substitution strategy may be harder to define 64 8.3 Beyond individual services, fixed mobile substitution will demand the right environment 65 Actions 66 Market intelligence services from Analysys Research 69 Reports from Analysys Research 70 Custom Research: meeting your information needs 71 Analysys Consulting: providing clarity in an increasingly complex and dynamic environment 72 List of Figures and Tables Figure 1.1: Split of outgoing voice minutes between fixed and mobile networks in selected countries in 2004 2 Figure 1.2: Relationship between mobile voice usage and the proportion of total voice traffic on mobile networks, 2004 3 Table 1.1: Case studies demonstrating a variety of approaches to the encouragement of fixed mobile substitution 6 Table 2.1: Statistics of Italian mobile operators at 31 March 2005 8 Table 2.2: Outgoing voice minutes and spend for fixed and mobile services in Italy, Table 2.3: 2004 8 Proportion of prepaid customers and annual ARPU for selected operators, June 2005 9 Figure 2.1: Annual ARPU and average monthly voice usage for TIM, 2001 4 9 Table 2.4: Prepaid tariffs offered by TIM in Italy, October 2005 10 Table 3.1: Statistics of Spanish mobile operators at 30 June 2005 17 Table 3.2: Table 3.3: Outgoing voice minutes and spend for fixed and mobile services in Spain, 2004 17 Proportion of prepaid customers for selected Western European operators, December 2001 to June 2005 18 Figure 3.1: Growth in voice ARPU and total ARPU for Telefónica Móviles (Spain), December 2002 to June 2005 19 Figure 3.2: Growth in average monthly voice usage for Telefónica Móviles (Spain), December 2002 to June 2005 20 Table 3.4: Contract tariffs from Telefónica Móviles in Spain, October 2005 21 Table 3.5: Prepaid tariffs from Telefónica Móviles in Spain, October 2005 22 Table 4.1: Statistics of the leading US mobile operators at 31 March 2005 26 Figure 4.1: Voice usage and ARPU of selected US and European operators, year to 30 June 2005 27 Figure 4.2: Average monthly voice usage per user for the leading US operators, first quarter 2003 to second quarter 2005 28 Analysys Research Limited 2005 Contents
vi Accelerating Fixed Mobile Substitution: detailed operator case studies Table 4.2: Sprint PCS Fair & Flexible Plans, October 2005 29 Table 4.3: Sprint PCS Fair & Flexible America Plans for voice, October 2005 32 Table 4.4: Examples of MVNOs offering prepaid services hosted by Sprint Nextel 33 Table 4.5: High-usage prepaid voice plans from Liberty Wireless, October 2005 33 Table 5.1: Statistics of UK mobile operators at 30 June 2005 36 Table 5.2: Outgoing voice minutes and spend for fixed and mobile services in the UK, 2004 36 Figure 5.1: Growth in customers of 3 UK, 2003 5 37 Table 5.3: Contract tariffs offered by 3 UK, October 2005 38 Figure 5.2: Comparison of any time, any network voice minutes bundled into contract tariffs by UK mobile operators, October 2005 40 Table 5.4: ThreePay prepaid tariffs offered by 3 UK, October 2005 42 Table 6.1: Statistics of German mobile operators at 30 June 2005 45 Table 6.2: Outgoing voice minutes and spend for fixed and mobile services in Germany, 2004 45 Figure 6.1: Growth in O2 and Genion customer bases, 2001 5 46 Table 6.3: Comparison of ARPU for German mobile operators, year to June 2005 46 Table 6.4: Pricing of O2 Germany s Genion service, October 2005 Table 6.5: Surf@home tariffs, October 2005 47 51 Table 6.6: Cost to users and revenue per Mbyte of O2 Surf@home 52 Table 7.1: Statistics of German mobile operators at 30 June 2005 55 Table 7.2: Outgoing voice minutes and spend for fixed and mobile services in Germany, 2004 55 Figure 7.1: ARPU for Vodafone operators in Western Europe and Japan, year to June 2005 56 Table 7.3: Statistics for Vodafone Germany, December 2003 to June 2005 56 Table 7.4: Zuhause Web tariff, October 2005 59 Figure 7.2: Comparison of prices for Vodafone s Zuhause Web and O2 s Surf@home services 60 Contents Analysys Research Limited 2005
Accelerating Fixed Mobile Substitution: detailed operator case studies vii Authors Dr Alastair Brydon and Dr Mark Heath are founders of Sound Partners Ltd and authors of 15 reports from Analysys Research, including Making a Success of Mobile TV and Video, Delivering Strategic Benefits with IP Multimedia Subsystem (IMS), The Future of MVNOs in the 3G Era, Wireless Voice over IP: technical and commercial prospects, The World s Top Ten Wireless Services, The Role and Impact of WiMAX and Proprietary BWA Technologies and The Road to Fixed Mobile Substitution Starts with 3G. Alastair is CEO of Sound Partners Ltd. Prior to joining Sound Partners, Alastair reported to Nokia s European management team and worked with many of Nokia s customers to implement market firsts ranging from the introduction of prepaid mobile tariffs to new mass-market content services. Previously, Alastair worked in a number of roles for the BT Group, focusing on the evolution of wireless services, networks and technologies. He also contributed to international research and standardisation of GSM, DECT and 3G. Alastair holds BSc and PhD degrees from UMIST, where he was awarded the IEE Prize for top student. Mark is Director of Research at Sound Partners Ltd. Mark has held a number of marketing and business development roles in Nokia, ultimately becoming responsible for strategy and business development across Europe. Previously, Mark was responsible for business planning at BT Cellnet in the UK, after spending six years at BT in wireless systems research and development. Mark holds BSc and PhD degrees from the University of Leeds, winning the University prize for his research in telecommunications. Mark also holds an MBA, graduating as top student from Henley Management College. Katrina Bond (Principal Analyst, Analysys Research) specialises in mobile telecoms, and has written reports for Analysys Research on fixed mobile substitution and VoIP, the mobile content and entertainment market, Western European mobile forecasts, mobile data solutions for businesses, GPRS roaming, pricing of GPRS services, GPRS billing, mobile portals and ASPs and m-commerce. She is a regular contributor to Analysys Research s Mobile Networks and Services online market intelligence service. Before joining Analysys in 1998, Katrina worked as a consultant in Australia. Acknowledgements The authors would like to thank all those who assisted in the preparation of this report, particularly those organisations and individuals who contributed interviews and supporting material, including Bettina Fornari (TIM), Edward Holland (Telefónica Móviles), Edward Brewster (3), Dennis Hampe (O2), Roland Kuntze (O2) and Ute Schack (Vodafone). The authors would also like to thank Ross Pow, Rupert Wood and Catherine Viola for their comments and suggestions and Claire Varley for editorial support. Analysys Research Limited 2005 Contents
viii Accelerating Fixed Mobile Substitution: detailed operator case studies Disclaimer Figures and projections contained in this report are based on publicly available information only and are produced by Analysys Research Limited independently of any client-specific work within the Analysys Mason Group. The opinions expressed are those of the stated authors only. Analysys Research Limited recognises that many terms appearing in this report are proprietary; all such trademarks are acknowledged and every effort has been made to indicate them by the normal UK publishing practice of capitalisation. However, the presence of a term, in whatever form, does not affect its legal status as a trademark. Analysys Research Limited maintains that all reasonable care and skill has been used in the compilation of this publication. However, Analysys Research Limited shall not be under any liability for loss or damage (including consequential loss) whatsoever or howsoever arising as a result of the use of this publication by the customer, his servants, agents or any third party. Glossary of terms 2G 3G ARPU CDMA DSL EV-DO GSM HSDPA IMS IP ISDN LAN MMS MOU MVNE MVNO PDA PSTN RTT SMS TV UMA UMTS USB VoIP W-CDMA WEP WiMAX WLAN WPA xdsl Second Generation Third Generation Average Revenue Per User Code Division Multiple Access Digital Subscriber Line Evolution Data Only Global System for Mobile High-Speed Downlink Packet Access IP Multimedia Subsystem Internet Protocol Integrated Services Digital Network Local Area Network Multimedia Messaging Service Minutes Of Usage Mobile Virtual Network Enabler Mobile Virtual Network Operator Personal Digital Assistant Public Switched Telephone Network Radio Transmission Technology Short Message Service Television Unlicensed Mobile Access Universal Mobile Telecommunications Systems Universal Series Bus Voice over IP Wideband Code Division Multiple Access Wired Equivalent Privacy Worldwide Interoperability for Microwave Access Wireless Local Area Network Wireless Protected Access Family of DSL technologies Contents Analysys Research Limited 2005
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