The fixed telecoms market in France is shifting rapidly from a public switched telephone system (PSTN) to voice over broadband (VoBB). As of the fourth quarter of 2011, VoBB accounted for 52 per cent of all fixed access (compared to 47 per cent a year earlier) and 68 per cent of all traffic (compared to 60 per cent a year earlier). This trend can be explained by a longstanding and significant price differential that has recently been extended to traffic to mobile phones.
Since late 2003, VoBB bundles have included cheap, unlimited calls to fixed lines including many international destinations (at the end of 2010, the headline price for a triple-play bundle with unlimited calls was under €30). But because mobile termination rates (MTRs) were historically high (ranging between 17.07 and 24.67 Euro cents in 2003), fixed-to-mobile traffic was not included in unlimited bundles but sold on a per-minute basis.
Between 1999 and 2010, the French telecoms regulator, Arcep, imposed a series of MTR cuts, leading to a target cap of 0.80 Euro cents by 2013. For many years, MTR reductions led to retail price cuts for PSTN lines but had limited impact on VoBB retail prices; the additional margin between MTR and VoBB-to-mobile retail prices was mainly kept by VoBB operators. However, in early 2011, in response to a change in VAT for triple-play bundles that could have led to a simple retail price increase, the main VoBB operators each announced a new series of offers that repackaged triple-play offers and, in particular, in parallel to a retail price increase, included unlimited fixed-to-mobile traffic in some bundles.
As illustrated in Figure 1 below, in just one year, the average monthly VoBB-to-mobile traffic more than quadrupled, whereas the average monthly PSTN-to-mobile traffic remained roughly stable. As a result, VoBB to mobile traffic has changed from being half to double that of PSTN-to-mobile traffic.
Figure 1: Average monthly traffic per user in France, by origin and destination [Source: ARCEP, Analysys Mason, 2012]
Such rapid changes are uncommon and are a good way to measure market reactions to isolated changes in price plans. In addition to the classic seasonal variations, between the fourth quarter of 2010 and the fourth quarter of 2011, the average VoBB-to-fixed traffic decreased by 38 minutes per month per user, i.e. around the same value as the increase in VoBB-to-mobile traffic. As a result, it is reasonable to assume that a large part of the rapid growth in VoBB-to-mobile traffic was due to consumers switching to calling mobiles instead of fixed lines.
Although the volume increase for mobile operators will clearly not compensate for the lower MTR imposed by the regulator, this case demonstrates how significant wholesale price reductions passed on to the retail market can generate a change in the network customers prefer to call.
Omar Bouhali is a senior manager with Analysys Mason. He has worked in a consultancy environment for over ten years and in operational positions within a telecom operator for five years. Omar has a deep understanding of the French telecom market and has worked in over 20 other countries worldwide. His main fields of expertise include costing/profitability analysis (for marketing and regulatory purposes), business planning/due diligence (on telecommunication assets or projects such as public-private partnerships) and regulation/litigation support (ex ante/ex post regulation, regulatory audits, broadband plans, etc.). Omar holds an engineering degree from the Ecole Polytechnique and an engineering degree from Telecom ParisTech in France.