Does fixed broadband have a future without mobile‾

The European mobile broadband market is evolving rapidly. The number of subscribers is rising strongly in all markets, with operators reporting an exponential rise in traffic (3 in the UK reported a ten-fold increase in its mobile broadband traffic between October 2007 and April 2008).

The main reason for this success is the retail price of the offers, with entry-level mobile broadband offers generally cheaper than the fixed equivalent in many markets. As a recent example, 3 UK launched a new mobile broadband offer on 23 March that costs GBP15 per month for data usage of 15GB, allowing practically unlimited use of most popular applications (including web browsing, email and chat).

Operators now sell cheap devices in the form of USB dongles and notebooks. Mobile operators sometimes even offer these notebooks and dongles (or embedded modem) in a free bundle for customers who sign a 24-month contract.

HSPA+ technology now offers speed and quality of service comparable to that of entry-level DSL offers and is largely satisfactory for the majority of uses from an end-user perspective.

Most of the growth of the mobile broadband market is among PC users with USB dongles or PCMCIA cards, and is both incremental and substitutional to existing fixed broadband use. As a result, there has been a significant slowdown in the growth of fixed broadband in markets where mobile broadband has taken off.

In Austria, one of the most dynamic markets for mobile broadband, fixed broadband had stagnated in the first three quarters of 2007, while the number of mobile broadband users almost doubled. In Sweden, the regulator, PTS, reported a 4.4% decline in the number of fixed broadband connections during the first half of 2008.

In addition, many users exhibit a preference for using a mobile device, even in the home, which diverts broadband traffic from the fixed to the mobile network. This behaviour is being further stimulated by mobile devices and applications such as the Apple iPhone and BBC iPlayer on iPhone.

Fixed players are therefore vulnerable to losing subscribers and traffic to mobile operators, as the majority of residential usages could largely be substituted by a mobile broadband offer. The following figure shows our forecast for the proportion of homes taking fixed and/or mobile broadband connections in Europe to 2014.


Figure 1: Broadband market trends in Europe [Source: Analysys Mason]

This trend suggests that fixed players should seriously consider moving into mobile broadband, both to protect their existing market position and to deepen relationships with their existing customer base. Fixed players are well positioned to address the mobile broadband market, partly because they have access to extensive content from their fixed broadband service.

When fixed players decide to move into mobile broadband, the first step in implementing this strategy is likely to be the negotiation of an MVNO agreement. Further actions include assessment of the regulatory environment, technical implementation, proposition development, definition of a pricing strategy and setting up distribution capability/options.